23 Apr 2009
DSG International (Dixons) has been told it was in breach of transfer pricing guidelines, however, a settlement is yet to be agreed upon between the retailer and HM Revenue and Customs.
Observers believe DSG could end up owing the taxman hundreds of millions of pounds.
In a 62 page document, special tax commissioners John Avery Jones and Charles Hellier outlined the decision, which has centred on the insurance of extended warranties and whether business facilities provided were set according to a standard market rate.
Transfer pricing relates to the value placed on assets or goods moved internally from one subsidiary to another within a multinational, and most often across international borders.
HMRC pursues cases where it believes the price has been set artificially low for tax purposes.
According to Steve Hasson, transfer pricing partner at PricewaterhouseCoopers, the DSG decision has done little to resolve concerns around the treatment of transfer pricing disputes.
'While it's interesting and illustrates once again the hazards of tax litigation, it doesn't give us a great deal of insight into how the courts perceive transfer pricing,' he said.
The case was heard before the Special Commissioners in London between 24 November and 12 December last year, but the decision is understood to have been deferred for the two parties to reach a settlement figure through arbitration.
In the decision, the Special Commissioners agreed that DSG set prices on its assets that 'confers a potential advantage in relation to United Kingdom taxation'.
Jonathan Peacock QC and Francis Fitzpatrick, counsel, instructed by Reynolds Porter Chamberlain, acted for DSG International and David Goy QC, Michael Green QC and Rupert Allen, counsel, were instructed by the General Counsel and solicitor for HMRC.
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