Originally written by Batanayi Katongera on Small Business
On 1 April 2019, the UK introduced new anti-profit fragmentation legislation intended to counter cross border structures which result in a tax mismatch. The rules are intended to apply where UK value is transferred or undervalued, resulting in that value being realised in a lower tax jurisdiction.
The rules place an obligation on taxpayers to prove that the arrangements are priced at arm’s length which means pricing the arrangements on the terms that would apply if there was no relationship between the UK person or company and the overseas person or company. SMEs are generally exempt from UK transfer pricing but the new rules effectively extend the UK transfer pricing rules to SMEs.
Background
The new measures were first introduced in the Autumn Budget of 2017, followed by a consultation that ran from April to June 2018.
The draft legislation and a response document were published in July 2018. After a period of consultation the legislation was introduced in Clause 16 and Schedule 4 of the Finance Bill 2018-19, including material changes to make it less burdensome with regards to measures such as self-notification and upfront tax payments.
The legislation introduced new anti-avoidance rules, effective from April 2019,