FDs demand rethink on pricing law

Top finance directors have urged the government to delay new transfer pricing legislation, arguing that it is weakly worded, lacking in detail and is being introduced at the worst possible time.

David Allvey, group finance director for BAT Industries and chairman of the One Hundred Group of FDs’ tax committee, said: ‘We will have to set up new systems to cope with the paperwork at a time when we’re all worried about the year 2000.’

In letters to the chancellor, the One Hundred Group and the Confederation of British Industry also called for changes to the wording of the bill to match the existing OECD transfer pricing model.

Although the legislation includes a paraphrase of article 9 of the OECD tax convention, Allvey wants to see the whole model imported. ‘Words and commas matter,’ he said. ‘If there’s a difference of interpretation between UK and overseas fiscal authorities, we could end up paying double tax.’

The new measures, proposed in Gordon Brown’s March Budget, were designed to prevent multinational companies avoiding UK tax by selling goods or services at a loss to corporate siblings based in other countries.

Allvey argued that neither the legislation nor draft Inland Revenue guidance made it clear what records companies were expected to keep in order to prove transactions were conducted at ‘arm’s length’ – as though a separate division of the same company was an external customer.

‘Any changes to the documentation would require companies to construct new reporting models,’ Allvey said, adding: ‘The new transfer pricing rules are being brought in with corporate self-assessment.

They add to both our burden and the Inland Revenue’s. Implementation should be deferred until after the year 2000 so we can all get past our systems issues.’

The Revenue indicated that since the bill has passed from committee to report stage, further changes are unlikely.