INTM462090 - Working a transfer pricing case: The settlement: interplay of transfer pricing and other issues

At the settlement stage, it is important not to 'trade off' transfer pricing issues and other issues against each other. You are seeking to tax the arm's length price and the settlement should reflect this. The arm's length price should not be altered to take into account any offer from the taxpayer on other issues. Apart from the obligation of the taxpayer to meet all aspects of the UK statute, there would always be problems under any mutual agreement procedure where the adjustment had been altered to reflect another tax issue, or this might appear to be so. For example: as part of a negotiated settlement, a company offers to accept HMRC’s definition of the arm's length price if HMRC will concede a potential adjustment on capital allowances. Such an adjustment would leave the UK vulnerable to the charge that the transfer pricing agreement did not reflect the arm's length principle.

Transfer pricing enquiries should be ring-fenced to keep them from becoming tainted by settlement concerns involving other issues. This does not mean that other issues should not be considered at the same time as transfer pricing, but they should be worked separately to prevent the possibility that resolution of the arm's length price is somehow affected by other tax issues.