Revenue Note for Guidance

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Revenue Note for Guidance

697LA Transactions between associated persons and between tonnage tax trade and other activities of same company


This section ensures that arm’s length pricing applies to transaction between associated companies and transactions between a tonnage tax trade and other activities of the same company.



(1) References to “control” take their meaning from section 11. The aspect relevant here is the meaning of control in relation to a company and it is the ability of a person to direct that the affairs of the company are conducted in accordance with the wishes of that person.

losses” includes management expenses and group relief.

transaction” is intended to include as wide a variety of transaction as is possible.

Transactions between associated companies

(2) This provision is concerned with transactions between a tonnage tax company and another company where one company controls the other or both companies are under the control of a third party. Tonnage tax as an extremely low tax environment may provide an incentive for associated companies to transfer as much profit as possible into the tonnage tax company by undercharging the tonnage tax company for goods or services provided. Conversely, there may be an incentive for a tonnage tax company to overcharge for its services so as to maximise its profits and provide the other company with larger than normal tax deductions which could be used to shelter other profits.

The provision applies where —

  • a transaction (or a series of transactions) takes place between two persons,
  • one of the persons is within the tonnage tax scheme,
  • one of the persons controls the other or both are under common control,
  • the terms of the transaction(s) differs from arm’s length terms such that the income of the tonnage tax company is greater than it would have been if the parties to the transaction were independent parties dealing at arm’s length.

In these circumstances, the profits and losses of each of the companies must be recomputed by reference to arm’s length prices.

Supplies of goods and services between a tonnage tax trade and non-tonnage tax trade of a company

(3) The rule as respects supplies of goods and services between associated companies is adapted for a case where a company carries on a tonnage tax trade and other activities so as to apply where goods or services are supplied to or by the tonnage tax trade by or to the other business units in the company.

Record keeping

(4) A requirement is imposed on a company to keep sufficient records for a period of 6 years available to establish how pricing and terms are determined.

(5) Revenue are authorised to access records and seek information to verify compliance with this section.

(6) A penalty is provided for where there is a failure to keep records for the purposes of the section.

(7) Revenue have power to audit a company to ensure compliance with the section.

Adjustments as a result of this section

(8) Any adjustments made as a result of the application of this section does not affect the tonnage tax computation of the company. That is, the computation of the tax charge by reference to the tonnage of the ships operated by the company.

Relevant Date: Finance Act 2021