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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer Pricing: methodologies: Mutual Agreement Procedure: advice on responding to requests for MAPs

How to respond to MAP requests

During a transfer pricing enquiry, any request to initiate MAP should not delay the progress and settlement of the enquiry. Nor need case teams be concerned about any assertion made by the taxpayer that the adjustment will be rejected at competent authority. Teams need to concentrate on applying the arm’s length principle as set out in TIOPA10/Part 4. If they have considered all the relevant facts in arriving at the arm’s length price then the adjustment will be in accordance with the relevant treaty and as such HMRC would normally expect the foreign competent authority should agree to give corresponding relief to eliminate double taxation.

From this it can be seen that it is imperative that an enquiry is expertly conducted, establishes the full facts and comes to a carefully judged conclusion so that any adjustment can be defended by the UK competent authority. If not the adjustment could be reduced or eliminated entirely through the mutual agreement procedure.

Four typical things to watch out for:

  • Do not agree an adjustment on the condition that the taxpayer will not seek competent authority assistance. To do so would deny the taxpayer their rights under the relevant treaty. The correct answer to any such approach is to remind the customer that they have the right to seek competent authority assistance and encourage them to do so. It is up to the taxpayer to decide whether or not they pursue a resolution under the mutual agreement procedure.
  • Do not agree to the bundling or rolling up of many years’ worth of adjustments into one year and to taxing them as one in that year. This is a common offer from taxpayers because it will save them interest charges from earlier years. It is very difficult to defend such an adjustment to a competent authority because it doesn’t sit very easily with the arm’s length principle. Nor should a smaller adjustment plus interest be accepted so as to give the same amount of money as if there had been a larger adjustment with no interest.
  • Do not accept an adjustment that is dependent on a successful outcome of MAP. Typically the taxpayer offers to agree to an adjustment subject to getting relief through the competent authority process. This offer must never be accepted. Case teams should point out that the taxpayer cannot be given a guarantee that the mutual agreement procedure will secure an outcome which eliminates double taxation, but that the UK adjustment, since it will be in accordance with the arm’s length principle will be inherently defensible by the UK competent authority. In practice, any resistance here should be referred to CTIAA Business International, Transfer Pricing Team to be dealt with by a competent authority.
  • Do not accept entries in accounts or computations that purport to reduce UK profits by giving effect to transfer pricing settlements concluded by other fiscal authorities. The only basis for getting relief for these amounts is through the competent authority process not by means of a DIY corresponding adjustment. If taxpayers wish to seek relief they should be advised to present their case to the competent authorities at Business International, Transfer Pricing Team.