HMRC says no link between amount demanded and amount collected in transfer pricing assessment

TPWeek has asked HMRC – through the Freedom of Information (FOI) Act - how much tax it demanded through transfer pricing assessment, from companies operating in the UK during 2012, and how much it eventually collected.

The FOI request sought to work out whether there is a gap between the money demanded and the money received and how that gap has occurred.

HMRC has confirmed it does hold information that falls within the request but estimates the cost of complying with TPWeek’s request be more than the appropriate limit of £600 ($940).

The Revenue said £600 represents the estimated cost of one person spending three-and-a-half working days determining if the department holds the information and consequently, under section 12(1) of the FOI Act the department is not obliged to comply with the request.

HMRC said transfer pricing interventions settled in any 12-month period are carried out under a range of circumstances and can be settled with the full cooperation of the taxpayer, arriving at an appropriate amount of tax payable, or they must be settled using formal, legal powers to obtain the documents the taxpayer is unprepared to provide voluntarily. Some cases may involve more than one taxable period.

Protective assessments

Any additional tax demanded by HMRC must be done so through issuing assessments.

“One circumstance in which HMRC may need to make such an assessment is in order to ensure that the legal time limit for making a further assessment to tax for an earlier period does not expire,” HMRC said in response to the FoI request.

This type of assessment is called a protective assessment and is based on estimates of the tax that may be at risk for the period to which they relate.

“Information available to HMRC at the time of making an estimated assessment may be very limited and it would be expected that the taxpayer would make an appeal and the appropriate amount would be determined through the appeal process.”

Assessments, for additional tax demanded by HMRC, need to establish the full facts and circumstances of the taxpayer’s particular transactions. The most appropriate transfer pricing methodology must then be established.

For these reasons, HMRC said estimates of tax risk in transfer pricing cases change throughout the assessment process.

“We would not expect to see, overall for any particular period, a meaningful relationship between tax demanded and yield achieved and do not keep records to attempt to link them.”

Permanent establishment

Tax assessments reflecting transfer pricing adjustments that have not been agreed by the taxpayer require the Commissioner’s sanction, under section 208 of the Taxation (International and Other Provisions) Act 2010 (TIOPA) but this does not apply to adjustments in relation to the attribution of profits to permanent establishments, which are also reflected in HMRC’s transfer pricing yield figures.

“While HMRC keeps records of Commissioners’ sanctions issued, it would be a complex task to link amounts assessed in different years for different taxable periods to the taxable periods covered in the yield statistics for each of the cases settled in a particular year. Furthermore it would also be necessary to undertake a separate exercise to identify permanent establishment issues reflected in the statistics and to try to establish on a case by case basis what assessments were issued and whether they included amounts representing adjustments in relation to profit attribution.”

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