Identifying transfer pricing risk

By Tolley in association with Pricewaterhouse Coopers

The following Corporation Tax guidance note by Tolley in association with Pricewaterhouse Coopers provides comprehensive and up to date tax information covering:

  • Identifying transfer pricing risk
  • Overview of approach
  • Indicators of risk
  • Other issues
  • Other sources of information
  • Further guidance

Overview of approach

Historically, transfer pricing enquiries were generally very resourceful, cost intensive and often continued for a number of years. To provide more focus to transfer pricing enquiries, HMRC introduced a ‘stage gate’ process in 2007, as set out in HMRC’s publication entitled ‘Making a Difference: Clarity and Certainty ’ for TP enquiries. Please refer to HMRC approach to transfer pricing enquiries for further guidance.

HMRC will undertake a full risk assessment prior to opening a transfer pricing enquiry, a procedure that emulates their general interactions with large businesses. If the result of this risk assessment process suggests that there is a low risk of a transfer pricing issue arising, the transfer pricing enquiry will not be pursued. HMRC state in INTM482040 that a number of factors taken together, rather than individual indicators alone, will signal the existence of a transfer pricing risk.

The results of the risk assessment will be used to compile a business case that is required to open a transfer pricing enquiry. For this reason, HMRC’s own guidance states that the risk assessment should be as detailed as is feasible in the circumstances, and should include the following:

  • an overview of the business
  • a review of the group structure
  • details of the main competitors
  • a summary of any previous transfer pricing enquiries

A more detailed list is set out in INTM482130.

HMRC has introduced a team of specialists who are responsible for undertaking the risk assessment process and who will actively work alongside the customer relationship manager (CRM) or case co-ordinator. This improved process should result in enquiries where there are clear transfer pricing risk issues in the context of the groups or companies involved.

Indicators of risk


More on Transfer pricing enquiries: