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SME exemption

For the calculation of profits arising on or after 1 April 2004, TIOPA10/S166 provides an exemption from transfer pricing rules for the vast majority of transactions carried out by a business that is a small or medium sized enterprise.

What constitutes a small and medium sized enterprise for this purpose is a modification of the European recommendation (2003/361/EC). Details are at INTM412080.

Exceptions - transactions with parties in non-qualifying territories

»Ê¹ÚÌåÓýapp exemption does not apply where a business has transactions with or provisions which include a related business in a territory with which the UK does not have a double tax treaty with an appropriate non-discrimination article. TIOPA10/S167(3) keeps such transactions subject to transfer pricing rules.

An appropriate non-discrimination article is one that ensures the nationals of a contracting state may not be less favourably treated in the other contracting state than nationals of that latter state in the same circumstances (in particular with respect to residence). A list of the double taxation treaties that HMRC regards as containing an appropriate non discrimination article as at 1st April 2011 (except where stated otherwise) is at INTM412090.

»Ê¹ÚÌåÓýapp Treasury has the power to make regulations adding to the list of territories that qualify even if the double taxation treaty in question does not contain an appropriate non-discrimination article, or to exclude territories even if the treaty in question does contain such an article.

Exceptions - Transfer pricing notice given to medium sized enterprise

HMRC may issue a transfer pricing notice to a medium sized enterprise to require that person to calculate their taxable profits applying transfer pricing to the provision specified in the notice. In any case where case teams think such a notice might be appropriate they must make a referral to CSTD Business, Assets & International Transfer Pricing team.

Exceptions - Election to remain subject to transfer pricing rules

»Ê¹ÚÌåÓýappre may be occasions where a business wishes to apply transfer pricing rules even though it would qualify for exemption. A business can elect that the exemption will not apply. An irrevocable election can be made for a specified chargeable period and will cover all transactions or provisions made in that period.

Exceptions - Patent Box

Where a SME is party to a transaction that is relevant to a patent box claim HMRC may issue a notice to require that person to compute their profits in accordance with transfer pricing in respect of that provision. In any case where case teams think such a notice might be appropriate they must make a referral to CSTD Business, Assets & International.