The Inland Revenue’s recent guidance notes on APA’s includes reference to the fact that it will not discriminate against small tax payers or against smaller transactions, but elsewhere in the guidance it reserves the right to decline such APA requests.
The Statement of Practice 3/99 clearly states that it recognises ‘that complex transfer pricing issues can be encountered by smaller tax payers as well as by large multinationals, and applications will not be declined by reference to the size of the transactions giving rise to the transfer pricing issues’.
However, the Statement of Practice goes on to state that APA requests may be declined where it appears to be an ‘inefficient use of resources’ to pursue an APA ‘because the transactions are of very limited nature…or are of limited value to the rest of the business’. Where does this take us?
It is not clear whether taxpayers should find the Inland Revenue’s Statement reassuring. Maybe, if a request is refused the Inland Revenue are signaling that the matter would not be worthy of investigation under self assessment! The Revenue have indicated that they may be prepared in certain cases (e.g. cost plus arrangements) to come to a ruling under a different procedure, Code of Practice 10. This normally offers certainty in relation to a particular period. APA’s are designed to last for 3 to 5 years. Would a Code of Practice 10 ruling last for a similar timeframe?
The timing for agreement of an APA is of great concern as well. The Revenue have stated 18 months as a goal for completing APA requests. Admittedly APA’s instituted through other tax authorities, particularly the US, have taken 2 to 3 years to reach agreement. Surely business should expect better.
We should be aiming to nearer 6 months than 18 months.
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