HMRC have published an amended technical note on compensating adjustment rules, following a recent consultation.

The transfer pricing rules are designed to mainly avoid double taxation between individuals and connected companies on international transactions, but they also apply to transactions within the UK. An increase in the taxable profits of one party gives rise to a right of the counterparty to claim a corresponding tax reduction known as the compensating adjustment.

The current adjustment rules can reduce the overall tax payable where the increased profits are taxable at corporation tax rates but the compensating adjustment is relieved at a higher income tax band.

Under the new regime, persons other than companies …