The report of transfer pricing statistics [PDF 35 KB] sets forth statistics as of the end of March 2012 concerning:
- Transfer pricing enquiries (audits)
- Advance Pricing Agreements (APAs)
- Advance Thin Capitalisation Agreements (ATCAs)
- Mutual Agreement Procedure (MAP) cases
Transfer pricing enquiries / audits
According to the HMRC report, the tax yield arising from transfer pricing enquiries (audits) increased from £436 million in the year ended 31 March 2011 to £1,095 million in the year ended 31 March 2012. However, this increase is still below the peak of £1,595 million reported in 2009.
The increased transfer pricing yield in 2011/12 has mainly come from the Large Business Service, which includes the UK’s largest corporate taxpayers, and has seen its yield increase by more than £671 million to reach £944 million.
The yield from Local Compliance taxpayers has remained fairly stable at £151 million (£163 million in 2011).
HMRC’s focus on settling old cases has resulted in settlement of 95% of cases open as at 1 April 2008, and the average enquiry time is now 26 months compared to 33 months as at 31 March 2010.
APAs, ATCAs and MAP cases
HMRC has a well established programme for Advance Pricing Agreements (APAs), and reported:
- Receiving 32 applications in the year to 31 March 2012
- Settling 32 APAs
- Having a total of 66 agreements in place during the period
The average time to reach agreement has been less than 17 months, with 50% of APAs agreed within 11 months.
During the year ended 31 March 2012, there were 160 ATCAs agreed to (compared to 127 ATCAs in 2011), and the average time to reach agreement was just over 10 months.
MAP and arbitration cases to eliminate double taxation arising from transfer pricing adjustments made by HMRC and UK treaty partners totalled 46 in the year ended 31 March 2012, with an average time of 23 months (although 50% were resolved within 21 months).
These statistics show that HMRC continues to be active in policing transfer pricing, and the additional tax yield of over £1 billion will no doubt suggest that HMRC ought to continue to invest resources in enquiries.
As HMRC acknowledges, the yield varies year to year due to the effects of a small number of very large cases. While the yield is significantly higher than the previous year, it is lower than 2009; as a result, it is difficult to judge if HMRC is getting better at targeting appropriate cases and working them more effectively. It is clear, though, that enquiries do not last indefinitely, and HMRC officials have been successful in almost entirely eliminating very old cases and bringing the duration of the enquiry experience down to less than two years.
The contribution from smaller corporate taxpayers under the Local Compliance group remains stable, and shows that transfer pricing is not just an issue for the largest multinationals.
Transfer pricing disputes generally arise from difficulties in determining appropriate arm’s length pricing within the context of the group arrangements. One way in which corporate taxpayers can reduce the risk concerning their transfer pricing arrangements is to reach an advance agreement with the tax authorities. Such arrangements are becoming more commonplace as HMRC is streamlining the process of these arrangements. The report of statistics shows that the time taken to reach an APA has been reduced by almost six months to just under 17 months. Such an improvement is viewed as highly commendable in that it helps to meet business demands for certainty within a reasonable time-frame.
It is also observed that HMRC offers a good service in helping taxpayers eliminate double taxation which arises through transfer pricing adjustments made by HMRC or a treaty partner, as evidenced in the numbers of cases resolved under MAP.
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in the UK:
+44 (0) 20 7694 4478
+44 (0) 11 8964 2007