TIOPA10/S147(3) and (5) contains the basic transfer pricing rule, which is founded on the arm's length principle (see INTM412040).

The rule requires a person's or persons' profits and losses to be calculated for tax purposes by substituting an arm's length provision for an actual provision if certain criteria are met, which are that

a ‘basic pre-condition’ is satisfied (TIOPA10/S147(2)(a)) and

the actual provision confers on the person or persons a potential advantage in relation to UK taxation (TIOPA10/S147(2)(b) and (4)(b)).

The meaning of provision is at INTM412050, and the meaning of person is covered at INTM412060.

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