Revenue fines 'draconian'

Businesses reacted with dismay this week to Inland Revenue plans to impose heavy fines if companies ignore new transfer pricing regulations.

The fines, outlined in draft guidance issued earlier this month, are due to be imposed on a ‘cost-plus’ basis which could see payouts by companies equalling the size of adjustments determined by Revenue inspectors. The fines could exceed 100% of the adjustment totals when interest payments are added.

The head of tax for one FTSE-100 company, who asked not to be named, said the fines would be draconian if they became part of the regulations.

He said the guidance gave the appearance that negligence will be treated as harshly as fraud.

The Revenue was given wider powers to crack down on transfer pricing abuses in the last Finance Act. From next year, the internal transfer of goods and services across national borders must be priced as if going to a third party, using the so-called ‘arms-length’ rule.

David Allvey, head of the tax committee for the FD 100 Group, has been campaigning to prevent new transfer pricing regulations, brought in by the last Finance Act, from being ‘too prescriptive’.

He has succeeded in forcing the Revenue to climb down from its demands that companies keep detailed documentation of every transaction.

The Revenue’s large business office has also lost out to the international division for control of transfer pricing policy. Revenue documents reveal the international division will oversee the development of policy, a role coveted by Marjorie Williams, head of the large business office.