Taxation (International and Other Provisions) Act 2010 section 166

Exemption for small and medium-sized enterprises

Section 166 exempts small and medium-sized enterprises from the transfer pricing rules that would otherwise require their profits and losses to be calculated on an arm's length basis.

• Small and medium-sized enterprises (SMEs) are generally exempt from the basic transfer pricing rule in section 147, which requires transactions between connected parties to be recalculated as if conducted at arm's length.
• The exemption applies when calculating the profits and losses of a "potentially advantaged person" — that is, the party who benefits from the non-arm's length terms — for any chargeable period in which they qualify as an SME.
• Whether a business qualifies as a small or medium-sized enterprise is determined for each chargeable period in accordance with the definitions set out in section 172.
• The exemption is not absolute: specific exceptions apply. For small enterprises, the exemption can be overridden under sections 167 and 167A; for medium-sized enterprises, it can be overridden under sections 167 and 168.