Transfer Pricing

Transfer Pricing

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I have a property group of companies that are all within the UK.

There are two property development companies and two property investment companies.

The development companies do not do any work for the investment companies so I presume that transfer pricing will not affect these companies.

However, development company 1 might buy a property and subsequently sell it to development company 2.

This sale, historically, has been at cost to the group. Will it now have to make the sale at open market value?

Can the accounts still reflect the cost to the group and the 'profit' element be reflected in the tax computation.

I would assume that if property development company 2 has sold the property, to a third party at open market value before the year end then there would be no loss in tax, as both companies pay tax at 30%. However, what would happen if the property is still in stock at the year end?

The holding company acts as group banker and makes a lot of payments on behalf of the subsidiaries. Currently interest is not charged on the loan accounts. Should the company now charge interest on the loans?

Chris

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By wdr
06th Aug 2004 09:35

The problem most likely to arise in in the funding of developmen
Typically in such situations, the lending company does not charge interest to the development company. The problem will be one of cash flow. The lending company will now be taxable on the imputed income on an arising basis, whilst the development company will be "enjoying" a deduction which will result in a trading loss to carry forward , relief from which will only arise when the development company makes a profit.

In many situations , however, the rules won't apply anyhow-especially if group relief can be claimed. It is where the companies are under common ownership, and not a group, that the issue might arise.

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