INTM452040 - Transfer Pricing: governance structure and processes: Transfer Pricing Group: Directorate specialisms within the Transfer Pricing Group

Business International
Specialist Investigations
Knowledge Analysis and Intelligence

Business International

The role of its International Specialists within the Transfer Pricing Group (TPG) arises from Business International’s (Bus Int) role as the transfer pricing product and process owner.

The product comprises the various transfer pricing-related pieces of legislation, i.e. all areas of UK legislation, tax conventions and other international instruments where the arm’s length principle is in point.

Bus Int has responsibility for ensuring the correct and consistent application of the product. It must also see that it is fit for purpose. This requires significant amounts of liaison with HM Treasury and across Central Policy and interaction with internal and external customers on general transfer pricing matters. It also involves making sure that the UK meets its international commitments and is able to influence what those commitments are through Bus Int personnel representing the UK in bodies like the OECD, the EU Joint Transfer Pricing Forum, etc.

The activities which Bus Int undertakes within the TPG derive from this product and process ownership. They are

• providing support to case teams and Transfer Pricing Specialists in transfer pricing enquiry work
• evaluating the administration of the transfer pricing process (through the TPG governance structure and procedures) and product
• making litigation decisions consistent with HMRC’s litigation strategy in partnership with other directorates
• producing and maintaining guidance for internal and external customers
• developing and delivering training to internal colleagues
• working with other tax administrations to eliminate double taxation in dispute resolution (under Mutual Agreement Procedure (MAP) and EU Arbitration Convention (AC)) or dispute avoidance (via Advance Pricing Agreements (APAs) and Advance Thin Capitalisation Agreements (ATCAs)) procedures

The commitment of Bus Int to enquiry work is undiminished but the nature of its input is changing over time with much of its operational support role being subsumed into the TPG structure. This is being done by building up the expertise of Transfer Pricing Specialists through development and delivery of training and guidance and by transfer of skills and expertise. This transfer is effected by continued involvement of International Specialists in customer enquiries and also by locating some of them alongside Transfer Pricing Specialists in other directorates either by ‘embedding’ them in Transfer Pricing Units or having other directorates’ Transfer Pricing Specialists work in Bus Int on an ongoing or ad hoc basis.

Bus Int input into individual enquiries is focused on

• providing specialist advice on the application of TIOPA10/Part 4
• risk assessment support
• development of Business Cases
• formulation of Action Plans
• direct contribution to correspondence and meetings with the customer
• review work and decision-making through its membership of the Transfer Pricing Panels and Transfer Pricing Board

This input is tailored to a degree commensurate with the risk of the case and recognises that Large Business Service (LBS) and Local Compliance (LC) Transfer Pricing Specialists are the focal points for the delivery of specialist transfer pricing support to case teams. Accordingly, it is the Transfer Pricing Specialist who normally triggers Bus Int involvement in a case.

Existing “fully-owned” litigation cases continue to be worked by Bus Int to conclusion and a Business International Specialist must be involved in any new case as soon as it appears to be heading towards litigation. Bus Int has responsibility for seeking the views of Solicitor’s Office on the prospects for litigation and is involved in any subsequent litigation decision through its membership of the Transfer Pricing Panels and Transfer Pricing Board. Currently, Bus Int is taking the lead in developing TPG guidance on working all cases to a litigation standard.

The role of Competent Authority in dispute resolution work continues to be exercised by Bus Int in accordance with international consensus that it must be kept separate and undertaken by personnel who had nothing to do with the original enquiry. MAP/CA work is outside the transfer pricing governance.

In dispute avoidance work (APAs) Bus Int retains its historic role as “gatekeeper” of the APA process and takes Competent Authority role in any APA although LBS/LC resource is used to an appropriate extent in individual cases. APAs have their own legislative governance structure and so are outside the transfer pricing governance.

Bus Int specialists also carry out work on pre-return thin capitalisation cases and this is not subject to the full transfer pricing governance process. Post-return thin cap work is carried out by the case teams and Transfer Pricing Specialists with Bus Int support and guidance and so is fully within the transfer pricing governance.

The Financial Transfer Pricing (FTP) group within Bus Int has end-to-end responsibility for the application of other non-transfer pricing Bus Int products, i.e. Avoidance Involving Tax Arbitrage and Paragraph 13. Therefore its specialist members do not spend 100% of their time on transfer pricing work. Nevertheless, where case teams identify a substantial financial services or thin capitalisation transfer pricing issue the relevant Transfer Pricing Specialist should consult FTP during risk assessment and obtain their input into any Business Case. FTP specialists provide the same kind of transfer pricing operational support as other International Specialists.

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Specialist Investigations

Specialist Investigations (SI) has 10 teams of Transfer Pricing Specialists in 5 locations: Bristol, Glasgow/Edinburgh, Leeds, London and Solihull.

As well as having representation on the Transfer Pricing Board, SI brings to the TPG a full range of investigative skills to add effectiveness to the working of transfer pricing enquiries. These include but are not necessarily limited to

• review and analysis of records and other documentation
• interviewing customers’ operational staff
• advice on the use of information powers and the preparation of formal notices
• negotiation expertise
• litigation experience

The involvement of SI in a transfer pricing enquiry is normally triggered by the Large Business Service (LBS)/Local Compliance (LC) Transfer Pricing Specialist.

SI will have a specific defined role to play in all active litigation cases and should be involved whenever it is likely that a case will be litigated.

In cases where fraud is involved SI will take the lead on the enquiry.

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Knowledge Analysis and Intelligence

Knowledge Analysis & Intelligence (KAI) has a team of economists who are available to provide support in the working of transfer pricing enquiries. Most are based in 100 Parliament Street but there are also economists embedded in Bus Int and LBS Birmingham.

KAI has representation on both Transfer Pricing Panels and on the Transfer Pricing Board but also, in cases where the economic issues are substantive

• acts as a focal point for all economic/commercial aspects of transfer pricing enquiries ensuring that that key case management decisions properly reflect economic/commercial considerations
• helps to shape work programmes necessary to support HMRC positions by identifying the relevant economic/commercial issues
• provides economic advice and analysis and assists in finding and managing external expert opinion
• produces critical appraisals of transfer pricing transactions, documentation and customer analyses from an economic/commercial perspective
• assists in developing economic/commercial counter-arguments

In addition, the economists can assist with the following more specific matters (the list is not exhaustive)

• statistical and econometric modelling and analysis
• industry research
• estimation of arm’s length transaction terms, especially prices
• the “would” argument - application of economic/commercial principles to test the commercial rationality of a transaction, including value added
• questions of form and economic substance
• how closely transactions match commercial reality
• economic v legal ownership of assets
• value chain analysis
• financial modelling/analysis including Discounted Cash Flow analysis and assessment of cost of capital questions
• risk analysis
• profit analysis including profit ratios
• licensing and royalty issues
• comparability analysis
• functional analysis
• valuation of intangibles

The involvement of economists in a transfer pricing enquiry is normally triggered by the LBS/LC Transfer Pricing Specialist. Consideration should be given to bringing KAI in during risk assessment as the economists can offer valuable insights into whether making a Business Case for an enquiry is worthwhile or not.