TPguidelines

Another type of specially low prices which may nevertheless be claimed to be arm’s length prices may be met with where the seller’s object is market penetration. Producers may lower the prices of their goods, even to the extent of temporarily making losses, in order to enter new markets, to increase their share of an existing market, to introduce new products into the market, or to fend off increasing competition etc. One result of this may be to produce a lasting reduction in the normal market price of the relevant goods but in general specially low prices may be expected to be charged for a limited period only, with the specific object of improving the profits of the producer in the long term. Producers may not, however, be alone in this kind of activity; both producing and marketing entities may combine in such an operation, splitting the risk and sharing the profitable outcome, if any, in some way between them. Tax authorities could in principle therefore accept such low prices· charged between associated enterprises as arm’s length prices but only if independent enterprises could be expected to have fixed the prices in the same manner in comparable circumstances.