Section 26

in the shoulder note, by substituting for the words

“the price on certain transactions” the words “price, disregard structure and impose surcharge”;

by inserting after subsection (3) the following subsections:

“(3a)  The Director General may disregard any structure adopted by a person in entering into a transaction if—

the economic substance of that transaction differs from its form; or

Finance 25

the form and substance of that transaction are the same but the arrangement made in relation to the transaction, viewed in totality, differs from those which would have been adopted by independent persons behaving in a commercially rational manner and the actual structure impedes the Director General from determining an appropriate transfer price.

Where the Director General disregards any structure adopted by a person entering into a transaction under subsection (3a), the Director General shall make adjustments to the structure of that transaction as he thinks fit to reflect the structure that would have been adopted by an independent person dealing at arm’s length having regard to the economic and commercial reality.

Where this section and any rules made under paragraph 154(1)(ed) apply, the Director General may by notice in writing require that person to pay a surcharge of not more than five per cent of the amount of increase of any income generally, or reduction of any deduction or loss, as the case may be, as a consequence of exercising his powers to substitute the price in respect of a transaction entered into by a person to reflect an arm’s length price for that transaction or to disregard any structure adopted by a person in entering into a transaction.

Any surcharge required to be paid by a person under subsection (3c) shall be collected by the Director General as if it were tax payable by that person, but shall not be treated as tax so payable for the purposes of any provision of this Act other than sections 103 to 106.”; and