DSG agrees £52.7m deal with HMRC

A long-running dispute between DSG International, owner of Dixons, and HM Revenue and Customs over transfer pricing arrangements has been settled with an agreement that the electronics retailer owes the taxman £52.7m.

A statement in documents for DSG’s recent £300m rights issue reveals the settlement is expected to be recorded in the company’s 2008/09 financial year accounts.

Transfer pricing disputes arise when goods are sold between two parts of the same group and the taxman believes the prices on the assets have been set at a level that will help avoid tax.

DSG is not expected to make an additional cash payment to HMRC as part of the settlement because the cost is already included in tax liabilities. According to one source, HMRC was seeking as much as double the amount agreed upon, while others believe £85m had been discussed.

DSG International said in its rights issue documents: ‘The key elements of the agreement in principle are such that a small proportion of the liability is not currently payable and the remainder will be offset against the income tax receivable which the group holds on its balance sheet.’

The Special Commissioners concluded last year that DSG had set prices on its assets that ‘confers a potential advantage in relation to United Kingdom taxation’ on the insurance of extended warranties.

Neither DSG nor HMRC had returned calls at the time of going to press.