Section 147 Tax calculations to be based on arm's length, not actual, provision

United Kingdom

(1)

For the purposes of this section “the basic pre-condition” is that—

(a)

provision (“the actual provision”) has been made or imposed as between any two persons (“the affected persons”) by means of a transaction or series of transactions,

(b)

the participation condition is met (see section 148),

(c)

the actual provision is not within subsection (7) (oil transactions), and

(d)

the actual provision differs from the provision (“the arm's length provision”) which would have been made as between independent enterprises.

(2)

Subsection (3) applies if—

(a)

the basic pre-condition is met, and

(b)

the actual provision confers a potential advantage in relation to United Kingdom taxation on one of the affected persons.

(3)

The profits and losses of the potentially advantaged person are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision.

(4)

Subsection (5) applies if—

(a)

the basic pre-condition is met, and

(b)

the actual provision confers a potential advantage in relation to United Kingdom taxation (whether or not the same advantage) on each of the affected persons.

(5)

The profits and losses of each of the affected persons are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision.

(6)

Subsections (3) and (5) have effect subject to—

(a)

section 165 (exemption for dormant companies),

(b)

section 166 (exemption for small and medium-sized enterprises),

F1(bza)

section 173A,

F2(ba)

section 206A (modification of basic rule where allowances restricted for certain oil-related expenditure),

(c)

section 213 (this Part generally does not affect calculation of capital allowances),

(d)

section 214 (this Part generally does not affect calculation of chargeable gains),

F3(e)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F4(f)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F5(g)

section 938N of CTA 2010 (this Part treated as of no effect for the purposes of Part 21B of CTA 2010 (group mismatch schemes)).

(7)

The actual provision is within this subsection if it is made or imposed by means of any transaction or deemed transaction in the case of which the price or consideration is determined in accordance with any of sections 225F to 225J of ITTOIA 2005 or any of sections 281 to 285 of CTA 2010 (transactions and deemed transactions involving oil treated as made at market value).

Annotations

Textual amendments

F1: S. 147(6)(bza) inserted (for chargeable periods commencing on or after 1.1.2026) by Finance Act 2026 (c. 11), Sch. 6 paras. 29(1)(a), 32(1) (with Sch. 6 para. 32(3))
F2: S. 147(6)(ba) inserted (with effect in accordance with Sch. 32 para. 16 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 13
F3: S. 147(6)(e) omitted (for chargeable periods commencing on or after 1.1.2026) by virtue of Finance Act 2026 (c. 11), Sch. 6 paras. 29(1)(b), 32(1) (with Sch. 6 para. 32(3))
F4: S. 147(6)(f) omitted (for chargeable periods commencing on or after 1.1.2026) by virtue of Finance Act 2026 (c. 11), Sch. 6 paras. 29(1)(b), 32(1) (with Sch. 6 para. 32(3))
F5: S. 147(6)(g) and word inserted (with effect in accordance with Sch. 5 para. 6 of the amending Act) by Finance Act 2011 (c. 11), Sch. 5 para. 5(1)

Notes on Part 4

Modifications

C1: Pt. 4 excluded by 2010 c. 4, s. 938N (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 5 para. 2)
C2: Pt. 4 excluded (1.10.2011) by Postal Services Act 2011 (c. 5), s. 93(2)(3), Sch. 2 para. 6(2); S.I. 2011/2329, art. 3
C3: Pt. 4 excluded (1.4.2012) by Budget Responsibility and National Audit Act 2011 (c. 4), s. 29, Sch. 4 para. 3(2); S.I. 2011/2576, art. 5
C4: Pt. 4 excluded (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 129(11) (with s. 147, Sch. 17)

Notes on Chapter 1

Modifications

C1: Pt. 4 Chs. 1 and 3-6 applied (1.4.2022 in relation to accounting periods beginning on or after that date) by Finance Act 2022 (c. 3), s. 51(1), Sch. 9 paras. 3, 4