HMRC release important guidance on identifying and pricing contributions to risk control by decision-makers

man reading documents at computer

HMRC have published important guidance which explains why they focus so heavily on risk and decision-making in audits, and which will be of great interest to any MNEs with dispersed decision-makers and TNMM-based transfer pricing methods.

Accurate delineation and risk is at the heart of many HMRC audits, and it explains their particular focus on senior decision-makers, and the forensic attention given by HMRC to decisions themselves. This topic will be of relevance to many taxpayers, particularly in light of the recently introduced UK transfer pricing documentation rules, in which the burden of proof sits with the taxpayer.

The guidance is long and conceptually challenging, and the practical ramifications are significant. Most taxpayers will not have deemed it necessary to parse out risks in the way that has been specified, nor to investigate decision-making structures separately for each risk.

Some may find it difficult to implement HMRC's suggested TP approaches. For already-stretched tax departments, the stipulations here will represent further burdens, and some people will view them as disproportionate. Taken together with the new documentation rules in the UK (see our other Tax Insights), and the possible lack of counterparty agreement on HMRC's interpretation, taxpayers are presented with difficult choices in how to approach this issue in a proportionate manner.

This article walks the sections of these new chapters, and provides our observations on what this could mean for impacted taxpayers.

Contact us

Yvonne Cypher

Yvonne Cypher

Partner, UK Transfer Pricing Lead, PwC United Kingdom

Tel: +44 (0)7957 296907

Ian  Dykes

Ian Dykes

Transfer Pricing Partner, PwC United Kingdom

Tel: +44 (0)7803 149718

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