McDermott Comment I UK Targets Big Business in Latest Move on Tax Avoidance
Sarah Gabbai, Associate at law firm McDermott Will & Emery, said:
“Transfer pricing was inevitably going to come under HMRC’s spotlight at some point, particularly in light of the requirements under the diverted profits tax (DPT) and country-by-country reporting (CbCR) regimes. On top of that, the COVID-19 pandemic has provided yet further justification for HMRC to look for further ways to plug the ever-increasing fiscal deficit.
Technically, multinationals should be able to use price-based methods in determining arm’s length prices where appropriate and disclose them accordingly, as long as such methods can be supported by a proper functional analysis. However, HMRC’s increasing tendency in recent years to favour a profits-based approach to determining arm’s length prices, be it a profit-split method or transaction net margin method (TNMM), may mean that we could see an increase in mutual agreement procedure (MAP) disputes in the near future, particularly as other tax authorities may take a different approach from that of HMRC.”