Transfer Pricing More Demanding
8 March 2010
By Pim Fris with Dr. Graham Poole
With the adoption of its Litigation and Settlement Strategy, Her Majesty's Revenue and Customs (HMRC) is expected to pursue the transfer pricing enquiries it opens rigorously. More will be demanded of analyses in such cases, as is illustrated in the proposed revisions to the OECD’s Transfer Pricing Guidelines, and evidenced in the detailed, economics-based scrutiny of transfer pricing arrangements and comparables in the Dixons ruling and other cases around the world. Where risk assessment highlights a potential exposure to challenge, an approach will be warranted that goes beyond basic documentation and penalty protection. This will increase costs for some -- but not all -- taxpayers, but also form the starting point for more strategic, value-adding, and robust solutions. This article argues that transfer pricing enquiries not anticipated with appropriate preparation may unveil unexpected but significant exposures for a company. Given the cost and risk involved if things go wrong, the authors advocate conducting a detailed analysis in situations that warrant it, as this approach will lead to more robust solutions and is akin to a conducting reasonable due diligence before making an investment.
