Section 174 | Claim by the affected person who is not potentially advantaged etc

(1)Subsection (2) applies if—

(a)only one of the affected persons (in this Chapter called “the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision, and

(b)the other affected person (in this Chapter called “the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities (see section 216).

(1A)Subsection (2) also applies in any case where—

(a)one of the affected persons is a non-UK resident company with a permanent establishment in the United Kingdom,

(b)the taxable profits of that company are calculated, as a result of section 21 of CTA 2009, as if the arm’s length provision (to some extent) had been made or imposed between the permanent establishment and the other affected person, and

(c)if the actual provision (to the extent corresponding to the arm’s length provision treated as made or imposed between the permanent establishment and the other person) had been made or imposed between the permanent establishment and the other person, that provision—

(i)would confer a potential advantage on the non-UK resident company in relation to United Kingdom taxation, and

(ii)would not confer a potential advantage on the other person in relation to United Kingdom taxation.

(1B)For the purposes of applying that subsection in such a case—

(a)the permanent establishment is to be regarded as “the advantaged person”,

(b)the other affected person is to be regarded as the “disadvantaged person”,

(c)the reference to the arm’s length provision is to that provision to the extent it is treated as having been made or imposed between the permanent establishment and the other affected person for the purpose of calculating the profits of the non-UK resident company, and

(d)the reference to the actual provision is to that provision to the extent that it as corresponds to the arm’s length provision treated as having been made or imposed between the permanent establishment and the other affected person for that purpose.

(2)On the making of a claim by the disadvantaged person—

(a)the profits and losses of the disadvantaged person are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision, and

(b)despite any limit in the Tax Acts on the time within which any adjustment may be made, all such adjustments are to be made in the disadvantaged person's case as may be required to give effect to the assumption that the arm's length provision was made or imposed instead of the actual provision.

(3)Provision about claims under this section is made by—

section 174A (claim not allowed in some cases where the disadvantaged person is within the charge to income tax),

section 175 (application of section 174 where guarantee disallowed),

section 176 (claim cannot be made unless advantaged person has made return on the basis that the arm's length provision applies),

section 177 (when claim may be made or amended), and

sections 181 to 184 (option to make claims in accordance with section 182 in some cases where actual provision relates to a security issued by one of the affected persons).

(4)Subsection (2) has effect subject to—

section 180 (closing trading stock and closing work in progress in a trade),

sections 188 and 189 (effect of claims under this section on double taxation relief), and

Chapter 5 (provision, where liabilities of an affected person under securities issued by that person are guaranteed, for attribution to guarantor of things done by that affected person),

.