INTM435050 - Transfer pricing: tax cases - Glaxo v CIR (68TC166)

In August 1995 three Glaxo companies issued an originating summons to the High Court. Their principal contention was that where a direction had been given under ICTA70/S485(3) (subsequently ICTA88/S770(2)(d), effect can only be given to the direction by the making of a new assessment, and not by amendment of an open assessment which pre-dates the direction. Such a new assessment must be made within six years of the end of the accounting period to which the direction relates (TMA70/S34).

The Inland Revenue argued that where an assessment for the relevant accounting period remains open, effect can be given to the direction by an adjustment made to that assessment either by the Commissioners or by an agreement reached under TMA70/S54. The Inland Revenue agreed that where there is no open assessment for the period, then a new assessment is required and must be made within the six-year time limit of Section 34.

The parties had been in discussion over Glaxo's transfer prices for many years and in relation to a considerable number of accounting periods. The practical effect of a finding in Glaxo's favour would be that. The Inland Revenue could no longer pursue transfer pricing adjustments for most of those accounting periods.

In October 1995 the High Court found for The Inland Revenue. And in December 1995 the Court of Appeal unanimously upheld the High Court's decision. Leave to go to the House of Lords was refused.

In the Court of Appeal Millett LJ noted that increasing an open assessment might result in interest on unpaid tax being charged from a date before the giving of the relevant direction. He decided that this was `not obviously unfair', since interest would not become payable unless the assessment incorporating the transfer pricing adjustment was upheld. The Judge’s comments here are very useful as it is sometimes contended that interest under TMA70/S86 cannot run from a date earlier than the date on which the relevant direction was given. Inspectors should resist pressure from taxpayers to compromise on this question.

See INTM436050 on Board’s directions.