HMRC To Increase Transfer Pricing Investigations

by Robin Pilgrim, LawAndTax-News.com, London

28 April 2009

Her Majesty's Revenue and Customs (HMRC) is set to increase the number of transfer pricing investigations. This follows a ruling against DSG International in a transfer pricing tribunal.

Lee Corrick, an assistant director at HMRC, is reported to have said that up to 100 new transfer pricing enquiries have been commenced within the past year, and that he expects that figure to increase in the next 12 months. The vast majority of transfer pricing cases are expected to be settled without the need to litigate. Large cases where HMRC concentrates its efforts, could involve GBP100m or more in tax revenue.

HMRC acknowledges on its website the disparity between approaches taken to transfer pricing by different authorities around the globe. It becomes a particular problem when two companies in the same group are subject to different tax rules and rates. It is therefore good that disputes are resolved increasingly by means of arbitration rather than litigation. With regard to the recent DSG case, a specialist tax panel in London, the Special Commissioners (SC), ruled last month that DSG did not properly account for its extended warranty contracts as they were moved between a series of subsidiaries - the SC's first ever ruling on transfer pricing arrangements.

DSG, the owner of the Currys and PC World brands, sold extended warranties to customers and then reinsured the risks through an Isle of Man-based subsidiary between 1997 and 2005. The SC's decision is understood to have been deferred to give time for agreement on a settlement figure through arbitration. However DSG may appeal in the High Court over the ruling, since significant sums are thought to be involved and the company had already stated that its position was robust.

HMRC's success would increase its leverage in negotiations with other multinationals on transfer pricing issues.

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