TPguidelines

The question has to be considered whether, in an arm’s length situation, goods might be supplied for no payment or an unusually low payment, or might be supplied at a price producing less than the usual profit, or even a loss. It would not be unusual for an independent enterprise to do this if the goods were samples or advertising offers, but associated enterprises are not likely to be in a parallel situation. The question is more likely to arise in connection with goods sold to an associate in financial difficulties when some or all of the payment might be waived. It would be very exceptional for this to occur in transactions between independent enterprises, though the possibility cannot be wholly discounted (for example a supplier might to some extent be prepared to waive payment by an independent customer in temporary difficulties in order to preserve a potentially valuable outlet for his goods). But tax authorities could properly require very convincing proof that this situation would arise before accepting a nil or reduced payment between associated enterprises as equivalent to the arm’s length price. Payment might be deferred in such circumstances in the arm’s length situation but this would normally affect the price or be compensated for under a credit arrangement of some sort.