Arcotia Hatsidimitris - International Tax Dialogue

52 – 6. REACHING A DECISION POINT
Where transfer pricing issues meet the above criteria they are considered by the HRCP Board on
the basis of recommendations made by the Transfer Pricing Board. Where transfer pricing issues do
not meet the criteria mentioned above, decisions are referred to the Transfer Pricing Board either by
the case team or by the Transfer Pricing Panel for the LBS or the Panel covering all the other areas of
HMRC undertaking this work. The Board makes the final decision on cases where litigation is
proposed by a Panel and agrees settlement parameters in high value cases below the threshold for
submission to the HRCP Board.
In many tax administrations processes for deciding whether or not to litigate require decision
taking to be made by individuals who have not been directly involved in working or managing the
audit or enquiry. A written submission is normally required setting out:
• the position of the parties,
• a recommendation from the most senior manager with oversight of the audit or enquiry,
• an assessment of whether penalties could be sought if the case is won.
The key issues in deciding whether or not to litigate are likely to be some or all of the following:
• From the tax administration perspective, do a transfer pricing specialist and a litigation
lawyer agree that the case is a strong one that can be won?
• Is a significant amount of tax at stake?
• Have all attempts to negotiate a reasonable settlement failed?
• Is the case likely to be the subject of consultation under the Mutual Agreement Procedure
provided for in a double taxation agreement?
• Is there evidence of good quality to support the tax administration’s arguments and has that
evidence been proved (can someone speak authoritatively to the source of the evidence) and
properly examined by lawyers and specialists?
• Are expert witnesses needed and, if so, what are they going to speak to? Has their evidence
been fully tested?
Could the time and money costs of litigation outweigh the benefits of success?
Do legal precedents support the tax administration’s position?
In the UK the answer “No” to any one of the above questions may lead to a decision that
litigation is inappropriate and that further negotiation or a form of alternative dispute resolution would
be more appropriate. In the UK, HMRC does not litigate speculatively and if on balance the case is
likely to be lost in litigation, it will not be pursued.
In HMRC the governance process for decision making in Transfer Pricing cases requires a
referral, in the first instance to the Transfer Pricing Panel before a decision is taken as to how the case
should be concluded.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012