INTM462080 - Working a transfer pricing case: Reaching a settlement

As discussed in INTM462040, the HMRC case team must not proceed to settle a transfer pricing enquiry until authority to do so has been obtained from the Transfer Pricing Panel or Transfer Pricing Board following the submission of a resolution report (INTM453060).

Usually, the Transfer Pricing Panel or Transfer Pricing Board will endorse the recommendations which the case team makes in the resolution report. Where it does not, the Panel or Board will explain why and set out the basis on which the case team should approach the negotiation.

There is rarely a single ‘right’ answer to what the arm’s length price is. It may well lie within a range of possible figures or there may be different ways of arriving at a reasonable assessment of how the transactions would have been priced had they been carried out between independents. Therefore, the resolution recommendations or any alternative basis should identify parameters for the arm’s length price rather than a single target figure, and the case team should always negotiate within them.

Any settlement should ensure that the arm's length profit is taxed. This profit must also be taxed in the right year, for at least two reasons:

• The statutory requirement is for a return to include the arm's length profit for that year, not the average of a number of years
• Under the mutual agreement procedure, competent authorities reach settlement to give an arm's length solution on a year by year basis.

If, despite best efforts, it is not possible to achieve a negotiated settlement, the case must be referred back to the Transfer Pricing Panel or Transfer Pricing Board with appropriate further recommendations. Litigation can then be considered.