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Transfer Pricing Audits on the Rise


UK Transfer pricing audits have been increasing steadily over the past decade. The trend is expected to continue in 2010, with some 1,000 outstanding cases at present related to UK transfer pricing. However, despite increased audit activity, the UK tax authorities are taking a measured approach to the selection of audits, which is encouraging for the many businesses that are making reasonable efforts to comply with the UK legislation.


Taxand's Take

In Short, Be Proactive

In transfer pricing audit procedures, UK Tax Authorities advise:

"As far as transfer pricing is concerned, it is generally more likely that the cases in which significant amounts of tax are at stake are those that result from manipulation rather than insufficient attention to the arm's length principle ... Where there is no, or minimal, opportunity to secure a tax advantage through manipulation, and the business has clearly taken some steps to apply transfer pricing rules, there is less likely to be a need for HMRC to initiate a transfer pricing enquiry."

The system for selecting audits seeks to benefit businesses that are not involved in aggressive structures and are reasonably compliant. Be proactive in advance of a potential audit and at the early stages of an enquiry. Providing the necessary information in a timely and open manner can ensure that enquiries do not get out of Gate 1. It is also necessary to consider the following:

  • Non-statutory meetings with your Inspector to discuss transfer pricing issues
  • Statutory certainty agreements to reduce the likelihood of audit
  • The importance of international co-ordination of audits

Your Taxand contact for further queries is:
Shiv Mahalingham
T. +44 207 715 5234

Taxand's Take Author