Guernsey domestic connected transactions and transfer-pricing evidence

Who this applies to

Use this Guide for Guernsey taxpayers with business receipts, charges, finance, distributions or asset transfers involving connected people or companies. Establish the taxpayer's domestic residence, taxable source and income class first, using the corporate or individual Guide. A related-party label alone does not identify an adjustment power, rate or documentation exemption. The statutory provisions below have different connection and scope tests. Income Tax Law, ss 7,65,67,108,148.

This Guide supplies the verified domestic methods and ordinary record obligations. It does not establish either the existence or absence of a complete general arm's-length/master-file/local-file regime for 2026. Guernsey told the OECD's 2020 peer review that it then had no specific transfer-pricing legislation; that dated statement is historical evidence, not proof that no later rule exists. The current ordinary scope question remains in Sources. Specialist multinational reporting, Pillar Two, financial regulation and other countries' documentation duties are outside this Guide. OECD 2020 best-practices report, paragraph 3.

Rates, bands and thresholds

Item	Amount or test	Period and source
General ownership/turnover safe harbour for all TP	Not established here; do not substitute a treaty or group-relief percentage	2026 scope limit; Law ss 67,108,148(3)
Ordinary section 108 plant/machinery price substitution	Open-market price, subject to the statutory recharge limit and election	Current s 108(1)–(7)
C42 intermediate-/higher-rate group gate	At least90% beneficial entitlement to capital, meaning distributable profits and winding-up assets, under the specified group limbs	Current s 148(3), C42, revised 16 July 2025
Business records	Six years following the end of the return-submission year; if no return required, the accounting-period-end year	2006 Records r 1 as amended by2012r2
Other-income records	Six years for trust/foundation income or a legal person; otherwise two years, with the actual starting event below	2012 Records amendment r 3
Failure to keep required records	Civil penalty up to £2,500 where the specified prejudice condition holds; separate offence provisions apply	2006 Records rr 5–6, 2012r6

These are the specified domestic tests, not imported OECD revenue bands or a universal definition of related parties. Ordinary company rates are determined separately from the source/class rules in the corporate Guide; this Guide calculates pricing bases rather than inventing a TP tax rate.

The base

Start with the statutory business computation

Section 7(1) uses ordinary commercial principles to compute business profit. Section 7(2) denies capital, private and non-business expenditure as specified, including charges not wholly and exclusively for the business; section 7(3)(d) separately addresses business borrowing interest and its stated exempt-body restriction. Retain the actual service, business purpose, agreement, invoice, payment and accounts-to-tax reconciliation. Evidence of an invoice or common ownership does not by itself prove deductibility. These provisions are not a blanket instruction to replace every connected price with a benchmark. Section 7(1)–(3)(d).

Section 67 allows the Director, in his discretion, to counteract a transaction or series whose effect is avoidance, reduction or deferral of liability. Its broad transaction definition includes arrangements, actions and omissions; intent or sole/main purpose is not required by subsection(3). Subsection(5) limits the power for the specified non-resident ChapterIV liability cases. Record the actual tax effect and legal ground; do not treat a supported commercial price as a universal statutory safe harbour, or assume a zero company rate removes all distribution, loan or other tax effects. Section 67(1)–(5).

Section 65(4)'s settlement definition excludes a bona fide transfer made at arm's length. PracticeM40 explains commercial open-market payment, repayment, interest and other terms for that specific exclusion. PracticeM41 describes the Director's stated non-invocation approach to qualifying incidental arrangements where the recipient enjoyed and declared the income and there was no consequent tax loss. Neither practice creates a general corporate TP exemption or a standard interest margin. Full settlement attribution remains outside this Guide. Section 65(4), M40, M41.

Connected machinery and plant: the section 108 calculation

1. Establish a sale of machinery/plant within section 108(1): seller controls a buyer body, buyer controls a seller body, common control of both bodies, or the separate sole/main expected allowance/deduction-benefit condition. A body includes corporate/unincorporated bodies and partnerships. No universal percentage control threshold is supplied by this section.
2. Establish open-market price. If actual price differs, subsection(2) substitutes open-market price for the purposes of the capital-allowance Part for all concerned, subject to the following limits.
3. Under subsection(3), where market price exceeds the seller's limit of recharge, substitute that limit. Subsection(7) defines the limit by actual original provision expenditure/cost under its dated limbs. The stated never-used manufacturer/supplier ordinary-course sale exception disapplies that recharge cap.
4. If the sale meets the connected-control limb but not the sole/main allowance-benefit limb, the parties can elect by written notice to the Director under subsection(4). The substituted price then becomes the lower of market price and expenditure still unallowed immediately before sale, computed under section 119. Subsection(3)'s recharge-cap rule does not apply to that election; subsection(4)(c) carries the specified seller-history balancing-charge treatment to the buyer on later events.
5. Record actual consideration, ownership/control, independent market valuation, original cost, allowance history, section 119 unallowed expenditure and the joint written election. Compute actual allowances/balancing charges under the rest of the Part separately. The substituted price is not cash paid, a general revenue sale price, or a complete tax liability.

Source: section 108(1)–(7). The examples below test this actual pricing method without assuming an unsupported margin or a final capital-allowance result.

Approved associated-company flows: C42 is a separate route

C42 starts with each company's own annual return/assessment, distribution and participator-loan obligations. Companies with common beneficial ownership can apply in writing for an approved associated-company ring. Specified internal dividend, interest, loan and rent flows can then be disregarded under that practice; actual distributions or qualifying loans to a non-corporate recipient or a company outside/not electing into the ring remain reportable and taxable as applicable. A company cannot belong to more than one such ring at once. Foundations can apply under the stated capital-interest information route, and overseas companies can apply. None of this dispenses with each separate company's records. C42, all 3 pages.

Every participating entity must elect by the first applicable quarter's reporting date, supply entity names, Guernsey residence status and share/ultimate beneficial ownership details, and have an authorised person sign. Obtain the Director's written approval; refusal/withdrawal is possible under the stated section 67/spirit-of-practice conditions. Intermediate-/higher-rate flows require the section 148(3) group, including the 90% capital entitlement test. C42's example contrasts a jointly owned trading company paying rent to one owner's separate property company with a wholly owned property subsidiary; common ownership alone does not satisfy the rate-specific group gate. Do not independently disregard rent merely because an election was sent. Group loss relief remains separately governed by section 142A. C42, section 148(3).

Deadlines and filing

Keep the current records, including where no return is required

The 2006 Records Regulations r 1 requires amounts received/expended and their reasons, sales/purchases, supporting contracts/vouchers/receipts, supplier details where a goods purchase has no supporting document, and closing stock with valuation basis. Make records contemporaneously or as soon as reasonably practicable. The 2012 amendment removes dependence on having a section 68 return duty: business records are still required where no return is required. Retain them for six years after the end of the submission year, or the business accounting-period-end year if no return is required. Thus business records for a return delivered during 2027 have the ordinary retention endpoint 31 December 2033, before inquiry extensions. 2006 rr1,7, 2012r2.

For property income, r 2 requires receipts/expenditure and reasons, payer names and periods, leases/licences/agreements and supporting documents, with its stated six-year submission-year period. For other income, substituted r 3 requires amounts received/arising/accruing, sources/persons and periods, liability-relevant documents and support. Its six-year period applies to trust/foundation income or a legal person; otherwise two years. Count from the end of the return-submission year, or, where no return is required, the year the document was created/received/obtained. Do not apply the obsolete original2006 two-year rule universally to companies. 2006r2, 2012r3.

A written inquiry notice extends retention until the later of the normal endpoint and the end of the year of written inquiry-closure notice; the2012 amendment extends this beyond inquiries into a submitted return to income/liability inquiries. Foreign-held records must remain within the person's control/power, with effective arrangements for expeditious removal to Guernsey and production when lawfully required. A foreign group's records system is not an exception. 2006r4, 2012 rr4–5.

Return, omission and information requests are different events

Section 68's return notice provides at least 21 days from issue and can require accounts/information; it can be a general published notice and applies whether or not tax is payable. Company returns/documents are electronic unless the Director permits another route under 68AA. Record the actual relevant-year notice; current filing/payment dates are in the corporate/individual Guides. Section 68A requires notification within 14 days of discovering omitted chargeable/deductible income, unpaid66Ctax, or failure to deduct under 81A/81B. An amended return at the next annual deadline is not a replacement for that notification. Sections 68,68A,68AA.

Section 75A permits a written taxpayer document/information/residence-evidence notice, normally after a reasonable opportunity to provide the material unless that would prejudice the inquiry/functions. Documents created for the person's pending tax appeal have the stated subsection(3) protection. Copies can be used in the specified form, with originals available for inspection when required. This provision does not create a universal21 day information-response period; retain the actual notice and its requirements. Third-party notices under 75B, court production orders, searches and legal privilege require their own statutory review. Contractual confidentiality alone does not defeat a valid requirement under 75M. Sections 75A,75B(1)–(4),75M(1)–(3).

Penalties and interest

Records r 5 permits a civil penalty up to £2,500 where a required-record or foreign-record-control failure is likely to prejudice the Director's functions. It is a ceiling and condition, not an automatic TP penalty. r 6 separately criminalises specified record failures and falsification; without-reasonable-excuse record failure has a level 5 fine ceiling, and intentional destruction or specified materially false/reckless information can attract up to two years' imprisonment, twice level 5, or both. No unverified monetary conversion of the uniform scale is supplied. 2006 rr5–6, 2012 rr5–6.

Section 75A(5) separately penalises unjustified non-compliance with its notice, while75L addresses specified document destruction and false statements under its own gates. Additional assessment under 75 normally has a six-year end-of-year period, with the stated fraud-at-any-time and negligence20 year exceptions; do not confuse that assessment window with a records destruction date. Ordinary income-tax surcharge calculation is in the individual Guide, not a standalone TP daily-interest rate. Sections 75,75A(5),75L(1)–(5).

For an ordinary domestic75A/75B notice challenge,75K requires an application for leave within 30 days immediately following the notice date, by summons stating grounds/material facts. An appeal after leave is normally instituted within 7 days immediately following leave, with the stated court extension power; appeal on a question of law from the leave decision has its own7 day/extension rule. Pending a leave application or notice appeal, subsection(11) makes the notice ineffective unless the relevant tribunal directs otherwise on the Director's application. Foreign-information/collection requests have additional restrictions on factual grounds in subsection(6); this is not a blanket right to challenge foreign tax merits. Obtain case-specific legal review rather than treating a tax-assessment appeal as the same proceeding. Section 75K(1)–(7),(11).

Cross-border points

Use the actual treaty's associated-enterprise rule separately from these domestic powers. The UK corridor preserves Article 9 and PE attribution, residence and relief methods. A foreign adjustment is not automatically the Guernsey taxable base or an automatic matching refund. The current linked Revenue MAP Guidance, issue 8 dated 12 February 2024, section 7.7.2 accepts TP cases for consideration and corresponding adjustments as applicable, including the stated cases without an Article 9(2) equivalent. This is procedural access, not proof every requested adjustment is due. Official MAP Guidance.

For a Guernsey MAP working paper, sections 7.1–7.3 provide hard-copy/electronic submission, English, no prescribed form and the minimum taxpayer/authority/treaty/facts/amounts/analysis/parallel-proceedings/accuracy records. TP cases add relevant foreign taxpayer identity and documentation. A request is not regarded as made until the minimum information is supplied; further information normally has a 60 day period unless more time is agreed. Retain the treaty clock independently. Collection is not automatically suspended by MAP; section 7.7.1 requires the separate appeal/payment/suspension analysis. The corridor Guide supplies the current intake detail. MAP Guidance7.1–7.4,7.7.1–7.7.5.

Two worked examples that recompute

1. Ordinary connected plant sale with recharge cap. Assume a qualifying used-plant sale, independently established market price £80,000, actual price £20,000 and a seller's statutory recharge limit £60,000. No never-used manufacturer/supplier exception or written election applies. Section 108(2)–(3) substitutes £60,000 for capital-allowance purposes, a £40,000 difference from actual consideration. This does not change the cash contract or calculate a final balancing charge. Section 108(1)–(3),(7).

name: Guernsey connected used-plant market-price substitution capped by recharge limit
inputs:
  market_price: 80000
  actual_consideration: 20000
  established_recharge_limit: 60000
steps:
  - substituted_price: min(market_price, established_recharge_limit)
  - difference_from_actual: substituted_price - actual_consideration
expected:
  substituted_price: 60000
  difference_from_actual: 40000

2. Valid written election changes the capital-allowance price. On the same values, assume the control limb is satisfied, the sole/main allowance-benefit limb does not apply, the parties make the required written election, and verified section 119 expenditure unallowed immediately before sale is £24,000. Section 108(4)–(5) gives the lower of £80,000 and £24,000: £24,000, rather than the ordinary £60,000 price. Carry forward the specified seller-history consequence for later buyer balancing charges. If any election gate fails, the £24,000 result is unavailable. Section 108(4)–(5).

name: Guernsey qualifying connected-plant written-election pricing base
inputs:
  market_price: 80000
  established_recharge_limit: 60000
  established_section119_unallowed_expenditure: 24000
steps:
  - ordinary_substituted_price: min(market_price, established_recharge_limit)
  - elected_substituted_price: min(market_price, established_section119_unallowed_expenditure)
  - change_in_pricing_base: ordinary_substituted_price - elected_substituted_price
expected:
  ordinary_substituted_price: 60000
  elected_substituted_price: 24000
  change_in_pricing_base: 36000

Ask the client first

1. Which parties transact, who controls them and who is beneficially entitled to their profits and winding-up assets?
2. What was actually supplied, on what terms, for what business purpose, and where are the supporting contracts and transaction records?
3. For plant, what are actual price, supported market value, original provision expenditure, allowance history and verified unallowed expenditure? Has a valid joint written election been made?
4. Is there an approved C42 ring, what entities/flows does its written approval cover, and when was the first applicable election submitted?
5. Which returns, omissions, notices, foreign adjustments and appeals exist, on what issue/discovery/receipt dates, and what deadlines or retention extensions apply?

Sources

Primary source and actual read scope	URL	Read on
Income Tax Law v.0113:7(1)–(3)(d),65(4),67,68,68A,68AA,75,75A,75P,108,148(3); targeted75B(1)–(4),75K(1)–(7),(11),75L(1)–(5),75M(1)–(3). Consolidation is non-authoritative; authentic enactments control	https://www.guernseylegalresources.gg/CHttpHandler.ashx?fileid=253819	2026-10-28
2006 GSI37 Keeping of Records Regulations, complete rr 1–8, read with actual2012amendment rather than original wording alone	https://www.guernseylegalresources.gg/CHttpHandler.ashx?fileid=267992	2026-10-28
2012 GSI13 Records amendment, complete rr 1–8	https://www.guernseylegalresources.gg/CHttpHandler.ashx?fileid=266947	2026-10-28
Revenue C42, all 3 pages, revised 16 July 2025	https://gov.gg/CHttpHandler.ashx?id=191876&p=0	2026-10-28
Revenue M40/M41, complete statements; specific settlement arm's-length scope	https://gov.gg/CHttpHandler.ashx?id=189611&p=0 and https://gov.gg/CHttpHandler.ashx?id=191687&p=0	2026-10-28
Revenue MAP Guidance issue 8,12 February 2024:7.1–7.4,7.7.1–7.7.5; linked in Guernsey's 17 March 2025 dispute-resolution profile	https://www.gov.gg/CHttpHandler.ashx?id=178595&p=0	2026-10-28
OECD 2020 best-practices peer review, paragraph 3: dated Guernsey-reported no-specific-TP-legislation statement only	https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/dispute-resolution/beps-action-14-peer-review-best-practices-guernsey-2020.pdf	2026-10-28

Not yet confirmed: whether a general domestic arm's-length adjustment regime or TP-specific master-file/local-file requirement applies for 2026 beyond the verified provisions and ordinary records duties above, including any operative scope/threshold/method/filing/penalty instrument. The2020statement does not establish current absence. Specialist CbCR/Pillar Two and regulated-sector regimes are excluded, not treated as absent. Detailed privilege, compulsory production/search and source-specific foreign-information appeals require separate legal review. The statutory-benefit and domestic-TP whole-pack review accepts these methods at 5d8327ad, with the final status closure checking later status edits. No professional attestation is claimed.

Contributed by Michael Cutajar.