Taxation (International and Other Provisions) Act 2010 section 206A

Modification of basic rule where allowances restricted for certain expenditure

Section 206A adjusts the transfer pricing rules where capital allowances have been restricted because decommissioning or site restoration services were provided by a connected person at an inflated price.

• This section applies where a recipient's (R's) capital allowances for decommissioning expenditure or site restoration expenditure have been restricted under the Capital Allowances Act 2001 because a connected person (S) supplied the services at more than arm's length value.
• When calculating S's taxable profits or losses from providing the service, the amount S must bring into account is limited to match R's restricted expenditure — not the actual amount charged.
• The normal transfer pricing rules (which would otherwise substitute arm's length amounts into both parties' calculations independently) are overridden to the extent they conflict with this matching requirement.
• The effect is to ensure symmetry: if R's allowable expenditure is capped at a restricted figure, S's corresponding taxable income is also capped at that same figure, preventing a mismatch where S would otherwise be taxed on a higher amount than R is allowed to deduct.

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