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Where someone has transactions with a connected party, then transfer pricing and thin capitalisation rules may require tax to be calculated on the basis of what the ‘arms length� provision would have been - if the actual provision confers a tax advantage in comparison with the ‘arm's length� result.

The rules apply to transactions between UK taxpayers, as well as cross border transactions. There is an exemption for most transactions by small and medium-sized enterprises (as assessed on a ‘group� basis).

Details of the current transfer pricing and thin capitalisation rules are set out in the International Manual.