viernes, 27 de mayo de 2016

HMRC opens public consultation on introduction of TP secondary adjustments

In the ‘Business Tax Roadmap’ in 2016, the government set out its commitment to make the UK’s tax system more efficient and competitive. These commitments included the provision of low UK taxes, whilst making clear those taxes must be paid and that the UK system would not reward aggressive tax

A recent strand of the UK government’s work in addressing tax planning has been the leading role it has played in the OECD/G20 work on tackling Base Erosion and Profit Shifting (BEPS). This has included the early domestic implementation of action points arising from BEPS and the strengthening and clarification of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations that are imported and utilised within the UK’s domestic transfer pricing rules.

The UK has not previously sought to introduce a secondary adjustment rule. However this government, in its commitment to ensure taxpayer compliance with the UK’s transfer pricing rules, would like to consult on whether such a rule would help to achieve this objective by addressing the financial benefit arising from incorrect pricing which currently remains after the application of these rules. This would complement the government’s work to date, both domestically and internationally, in tackling taxpayers entering into aggressive transfer pricing arrangements to avoid tax in the UK.

The UK’s transfer pricing rules seek to ensure a correct allocation of taxable profit linked to activities undertaken in the UK from transactions between connected parties, typically two companies belonging to the same group. The rules require the terms of the transaction, and thereby the profits arising from it, to be calculated by reference to those which would have been agreed if the companies were independent. This is referred to as the ‘arm’s length principle’ and it is applied whether a UK resident company is transacting with another UK company or one that is based overseas.

The arm’s length principle has been adopted internationally for transfer pricing rules. It provides an agreed basis for the fair allocation of profit on cross border transactions between connected parties and also avoids double taxation. However, this also means that changes to that principle need the same international agreement and can take some time to agree.

The UK’s transfer pricing rules calculate the taxable profits on the price that would have been charged at arm’s length. This is achieved via an adjustment (the primary adjustment) to the price that is effective for tax purposes. As the primary adjustment is only effective for tax purposes, any cash benefit from non-arm’s length pricing can accumulate in an overseas company, often located in a
low tax country.

The above cash benefit can be reversed by a secondary adjustment rule, which applies a tax charge on the excess cash arising on non arm’s length pricing. The rules are an internationally recognised approach and are already part of the transfer pricing rules applied in many leading economies including the United States, Canada, France and other EU Member States.

Whilst the approaches to secondary adjustments by individual countries vary, they represent an internationally recognised method to realign the economic benefit of the transaction with the arm’s length position. It restores the financial situation of the relevant connected parties to that which would have existed if the transactions had been conducted on an arm’s length basis.

The UK government is looking at the possible introduction of a rule into the UK’s domestic transfer pricing legislation as part of its commitment to ensure taxpayer compliance in this area and is seeking views on policy design and implementation issues. In this regard, the HMRC has launched a public consultation. This consultation closes at 18 August 2016 11:45pm (GMT).

Where a decision is made to introduce the rule, the UK government will consider the responses received in any subsequent drafting of the legislation, for inclusion in Finance Bill 2017.

Source & more info: HMRC

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