Taxation (International and Other Provisions) Act 2010 section 180

Application of section 174(2)(a) in relation to transfers of trading stock etc.

Section 180 addresses the timing of compensating adjustments for the disadvantaged person when trading stock or work in progress is transferred between connected parties at non-arm's length prices.

• When stock is transferred between connected parties at a non-arm's length price, the transferor's profits are immediately increased to reflect the open market value, but the transferee's compensating adjustment only arises when that stock is eventually sold or used.
• To prevent this timing mismatch, the compensating adjustment under section 174(2)(a) does not affect the credits that the disadvantaged person brings into account for closing trading stock or closing work in progress.
• This restriction applies for accounting periods ending on or after the last day of the advantaged person's accounting period in which the non-arm's length provision was made or imposed.
• "Trading stock" takes its meaning from section 174 of the Income Tax (Trading and Other Income) Act 2005 (for income tax purposes) or section 163 of the Corporation Tax Act 2009 (for corporation tax purposes).