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On-line tool: Step 3 - Small enterprise exemption

We are now at Stage 2 of Step 3.  Based on the explanation below, is the transaction you are looking at with a non-qualifying territory?

Click the answer:
        YES         NO


The exemption does not apply where the other related party is a resident of certain countries (“non-qualifying territories”). 

And where there is a series of transactions which form a composite transaction that is caught by the transfer pricing rules, then the exemption is disapplied if any of the parties to any of the component transactions (even if that party is entirely independent) is resident in a “non-qualifying territory”.  

However, the broad effect is that the small-sized enterprise exemption is only available for transactions that are:
  • wholly within the UK or
  • with (or via) countries with which there is a double tax agreement (DTA) that contains certain non-discrimination provisions.
Although many countries do have UK DTAs with the relevant provision, there are a number of significant exceptions.  For instance, the UK has substantively no DTA with Brazil. 

Just following the 2004 Budget, the Inland Revenue published guidance which specifies which countries are qualifying territories.  Click here to download.

The legislation includes powers for the Government to override these tests, to include or exclude any country they name.  Guidance on the Inland Revenue website following the Budget confirms that the government has no specific plans to use these powers.  It had been speculated that the exemption would be denied for low tax rate countries like Ireland, but it would appear that this is not the case.

The 'small print'

The comments on this page and elsewhere on this website are of a general nature.  It is not practicable in a general review such as this to consider every convolution of the UK transfer pricing rules or of any other tax law that may be relevant.  Moreover, these pages naturally do not take into account the specific facts relating to any particular taxpayer.  Therefore, although the guidance in this website should give a good indication of the likely position under the transfer pricing rules, taxpayers should obtain professional advice to verify the position, or carry out their own analysis.

Neither TPS nor its affiliates and employees make any representation regarding the completeness or accuracy thereof and they accept no responsibility for any loss or damage incurred as a result of any user acting or refraining from acting upon anything contained on these pages or upon its omission therefrom.
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