As discussed in Weekly Tax Briefing No 35 of 10 September 1999, it is now possible to enter into an Advance Pricing Agreement (APA) with the Inland Revenue to fix transfer prices with overseas affiliates for UK corporation tax purposes.
An APA may also have indirect tax consequences. It should be borne in mind that where a transfer price is agreed in advance with the Inland Revenue, Customs & Excise are likely to rely on this as a primary indication of the value to be declared for duty purposes.
While it may be desirable to negotiate with the Inland Revenue a higher price for imports, in order to reduce profits chargeable to corporation tax, this may have the effect of increasing Customs duty and VAT costs.
