Transfer pricing and VAT
Transfer pricing adjustments or compensating adjustments made under TIOPA10/Part 4 have no direct VAT consequences. However, where a business undertakes a transaction with an associated business other than on an arm’s length basis, then there may be a question about whether the value of the underlying supply for VAT purposes is less than the open market value. If so, then, depending on whether the conditions specified in VATA94/SCH6 are met, there may be scope for making a direction that the open market value is used for VAT purposes. This is most likely to be an issue if the two parties to the transaction are not in the same VAT group, or if a member of the VAT group is involved in making supplies that are exempt for VAT purposes (as then the value of supplies to other members of the VAT group may affect the amount of input tax that can be recovered).
Source gov.uk
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