Arcotia Hatsidimitris - International Tax Dialogue

5. MAINTAINING PROGRESS, TACKLING DELAY – 45
Box 9. United Kingdom – an example of constructive facilitation by advisors – joint modelling
In a major transfer pricing case, both HMRC and an MNE realised that there was a high degree of
agreement about the appropriate pricing model, even though there was substantial disagreement
about the appropriate inputs. In fact it was quickly recognised that each side’s pricing model,
although built on the advice of different experts, could actually be stripped back to a point where the
models were almost identical. The MNE’s advisers worked with the MNE and HMRC to develop a
single agreed model. Following rigorous testing by specialists in HMRC, this model sat in a data
room in the offices of the MNE’s advisers but with access provided to all parties. HMRC and the
MNE agreed to use this single model for all their hypothetical thinking and to test the impact in tax
terms of agreed changes and of the range of differing inputs under consideration. Both sides met
daily for a two week period of intense discussions. The joint model allowed them to focus on the key
issues and reach a mutually acceptable outcome. Working in this way was extremely productive and
saved all parties substantial time and cost.
Use of specialists
The type of specialists who can add value to transfer pricing cases, their role and the timing of
their use is covered in detail in Chapter 7. No mention of progressing transfer pricing cases and
tackling delay would, however, be complete without reference to the value that specialists, in
particular sector experts (as mentioned in Chapter 3), valuation professionals or economists, can add
at this stage. In the HMRC example given above in Box 9, the joint model, which proved so
fundamental to resolution of this long running dispute, was developed and tested by expert
economists. In those tax administrations which have the ability to bring in either internal or external
expertise, experience suggests that they can be particularly effective in helping to reopen the dialogue
in cases where progress has stalled.
Monitoring progress and active management
The importance of a project management approach including clear project plans for transfer
pricing enquiries based on a rigorous and focused examination of the risks, often in the context of a
robust governance structure, was highlighted in Chapter 3 as key to getting off to a good start. An
appropriate system of oversight of such project plans, to ensure problems are quickly identified, as
well as methods for effectively addressing problems as they arise, were identified by tax
administrations and advisors as key to tackling delay. The more complex the case, the more crucial it
is to maintain momentum, given the time that can be wasted repeating and revisiting the facts as team
members on all sides change over time.
Oversight of project plans
Consideration of the merits of an audit or enquiry by senior management before it is entered into
is considered good practice. In the UK for example, every transfer pricing enquiry must be opened
with prior approval of the Transfer Pricing Panel or Board and an action plan produced. Those action
plans are reviewed regularly. The box below sets out an extract from HMRC instructions to those
working transfer pricing cases:
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012