INTM436050 - Transfer pricing before CTSA

Board’s directions

As was mentioned at INTM436010, ICTA88/S770 is 'direction-led' i.e. the legislation only applies if the Board of HM Revenue & Customs so directs. This page deals with the special rules that apply where amounts fall to be assessed that involve the operation of transfer pricing provisions at ICTA88/S770 et seq. The rules involve functions that the legislation says must be performed by the Board. The exercise of these functions is a way by which HMRC monitors the application of transfer pricing rules, aiming to ensure that the legislation is only used in appropriate cases. The Board's approval performs a similar function in relation to Schedule 28AA - see INTM434060.

For accounting periods ending before 1 July 1999 and for years of assessment before 1999/2000, it is necessary to obtain a Board’s direction before making an assessment which includes a transfer pricing adjustment, unless that adjustment has been agreed by the taxpayer, in which case the taxpayer should provide an amended return. If the amended return is submitted and accepted, no formal action is required, because HMRC is in effect simply accepting a revised set of computations. However, if an assessment is required in other circumstances, it will only be valid, so far as its transfer pricing component is concerned, where the Board directs that it should be made.

(For later periods, where a Board's approval may be required, see INTM434000 onwards.)

Circumstances where a direction is required

A direction must be sought by a request, in the form of a submission to Business International. Such a submission will be required on the following occasions:

• a year of assessment or accounting period is about to go out-of-date and an assessment or further assessment is to be made to protect HMRC’s position under ICTA88/S770
• negotiations have broken down and the matter is to go to appeal
• the taxpayer requests that a direction be sought
• a year under enquiry is about to fall outside the normal six year time limit, even if there is still an open assessment for that year (as a matter of best practice)
• the taxpayer refuses to provide an amended return
• a year is about to go out of date and it is necessary to make a loss determination

Form of submission

A request for a Board’s direction should be referred to Business International and the submission constructed along the lines recommended by SCS122/02 - Services & Compliance Series Memo: Technical Work: Referrals to Revenue Policy and other Departmental Specialists for Advice

Submissions should cover the following points:

• the parties to the transactions should be identified as far and as specifically as possible (although this may be difficult if, say, a UK company is providing services to a worldwide group)
• confirmation that the transactions are cross-border and within the scope of the legislation
• evidence that there is an actual, or potential, loss of tax to the UK
• an indication of the amount of tax actually, or potentially, at stake

Where a direction is made, it is HMRC’s practice to send a copy to the business before, or at the time, the assessment is made.

When a direction can be made

• Where an assessment is made containing a transfer pricing adjustment, the direction must be made within the statutory time limit for making the assessment.
• However, where there is already an assessment in place and under appeal, a direction and consequent adjustment may be made after the statutory time limit for assessing has expired. This is only possible where an appeal against the assessment remains unresolved. The legal validity of this latter situation has been confirmed by the Court of Appeal in the case of Glaxo Group Ltd and Others v. Commissioners of Inland Revenue (STC1075) - see INTM435050 for further comment on the Glaxo case.