McDermott Comment: HMRC Pursues Multiple Criminal Investigations in Corporate Tax Disputes


Sarah Gabbai, tax attorney at law firm McDermott Will & Emery, said:

“It is hard to see how HMRC could justify commencing a criminal investigation into a business’s tax affairs if it has an up-to-date, OECD-compliant transfer pricing policy with reliable economic comparables, particularly if it has documented procedures in place showing how those comparables were selected, and the reasons for its chosen transfer pricing methodology. Even if HMRC disagrees with the methodology chosen, having these policies and procedures in place ought to indicate an honest belief in the correctness of the arm’s length result, even if, in HMRC’s view, that belief is mistaken.”

James Ross, partner at the same firm, added:

“Accurate transfer pricing in line with the arm’s length standard is, by its nature, an art rather than a science – in any given situation, there may be a wide range of different, honestly-held opinions on what the right answer is. Indeed, the increasing difficulty in applying the current rules consistently is one of the main reasons that the OECD is currently looking at revising them. A finding of fraud implies intent to evade tax on the part of the taxpayer, and it seems unlikely that any multinationals would establish a transfer pricing policy it knew to be unjustified – such a policy would not survive contact with the group’s auditors, even before it is presented to a tax authority. It is more conceivable that false statements could be made to a tax authority once an audit or dispute has commenced – and major corporates would be well advised to implement suitable procedures to protect against this eventuality.”