Melissa Tatton, chairwoman of Her Majesty’s Revenue and Customs transfer pricing board, has said that although companies are paying more attention to getting transfer pricing right, the amount of tax raised by the Revenue through transfer pricing work has increased markedly. This shows that mistakes are being made.
“Transfer pricing is very expensive for business to monitor,” said Tatton at a conference in London. “Audits and disputes can [also] be very difficult to manage.”
Amid fears that companies are not being careful enough with transfer pricing work, is the threat of tax authorities picking up on it.
Transfer pricing disputes are increasing worldwide and the large sums at stake mean that taxpayers cannot be too careful in decisions on how to defend themselves.
Speaking of the £505 million ($779 million) settlement that his company reached with HMRC recently over a long-running dispute, Ian Brimicombe, head of tax at AstraZeneca, the pharmaceutical company lamented the amount of time and money his tax group had to spend preparing for litigation that, in the end, did not happen.
Maintaining open channels of communication with the tax authority concerned is crucial. Both HMRC and AstraZeneca expressed their satisfaction with the resolution that was achieved by talking about the issues, not fighting them out in a court room.
The government is now reportedly looking at formalising a mediation processes for resolving tax and transfer pricing disputes.
“We have had discussions with HMRC about implementing mediation as part of their litigation settlement strategy review,” says Peter Nias, a partner at McDermott Will & Emery in London. “I support the idea.”
"As part of an ongoing review on handling disputes, HMRC are exploring the use of alternative dispute resolution techniques to help make the conduct and resolution of disputes with taxpayers more efficient," said an HMRC spokesperson. "These techniques are seen as tools, many already in widespread operation, for use within the existing departmental dispute channels."
The UK will not be the first country to use mediation as a means of resolving these complex disputes. The US has used this system since 1998, although it was not formally introduced until 2002.
Australia also makes use of mediation, where alternative dispute resolution is very popular.
