Arcotia Hatsidimitris - International Tax Dialogue

6. REACHING A DECISION POINT – 53
Box 12. United Kingdom – HMRC’s guidance to staff on decision making in Transfer Pricing cases
- requirement for a referral
• The referral is by means of a written review of the case by the case team/Transfer Pricing Specialist.
• The review should be recorded on the same template used from the start of the enquiry and additional
guidance on its completion is available on the Transfer Pricing Group Intranet site.
• The completed review should be sent to the appropriate Transfer Pricing Panel as soon as possible and
leaving adequate time to complete the process of resolution itself within the overall 18/36 month time
limit.
• The Transfer Pricing Panel should not be presented with a recommendation to litigate until a Head
Office Transfer Pricing Specialist and Solicitor’s Office have given at least an indicative opinion on
whether litigation steps should be taken.
• Taking full account of the resolution review recommendation, the Transfer Pricing Panel (in larger cases
the Transfer Pricing Board or, in the very largest cases, Excom 3 ) will decide whether the case team
should negotiate a settlement.
• Where the decision is to negotiate, the Transfer Pricing Panel etc. will authorise the case team/transfer
pricing specialist to settle according to clearly defined parameters.
Settling disputes by negotiation and the role of internal appeals
A number of tax administrations encourage resolution of disputes by negotiation in order to avoid
the uncertainty of outcome, time delay and costs of litigation. Even where there is a clear strategy and
tight governance around reaching the conclusion whether or not to negotiate or litigate, some tax
administrations have processes in place to encourage settlement other than by litigation.
In the US to minimise the expenditure of resources by the taxpayer and tax administration alike,
the IRS encourages taxpayers to resolve their disputes by negotiation and settlement rather than by
litigation. This sort of dispute resolution in the IRS is by appeal to the Office of Appeals (“Appeals”).
Appeals can resolve disputes because it is the only administrative function the IRS with the authority
to consider the settlement of tax controversies and is charged with resolving, to the maximum extent
possible, disputes without resorting to litigation. Appeals have to resolve disputes without litigation on
a basis which is fair to both taxpayer and Government and which will enhance voluntary compliance.
US tax lawyers told the study team that they aimed to get their transfer pricing cases to Appeals at the
earliest possible point in an audit or enquiry so that a process of negotiation could begin. They did not
regard the Appeals’ process as particularly easy to navigate. Nonetheless, the Appeals function is very
successful in settling tens, if not hundreds, of thousands of cases of all types a year with a success rate
in excess of 80% of the cases referred to them.
It is interesting to note that the statutory provision that allows taxpayers to recover costs from the
IRS when they succeed in litigation, requires the taxpayer to have exhausted every legal remedy
before litigating. This means that a taxpayer will normally have had to refer their issue to Appeals
before going to Court.
Appeals’ authority to resolve tax disputes without litigation derives from their ability to reach
settlements on the basis of an assessment of the hazards of litigation.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012