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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer pricing: risk assessment: conducting a transfer pricing risk assessment: range of issues

Presence of competing issues

It may be that intra-group transactions involving the subject of the risk assessment are limited to the purchase of goods from an affiliate, but on the other hand it may emerge that the group has a large number of complex issues such as:

  • Purchase of goods from several affiliates
  • Sale of goods to a number of overseas affiliates
  • The payment and receipt of management expenses
  • Payment for benefits derived to subsidiaries from its employees being able to participate in a parent company’s share option scheme
  • Debt factoring (see CFM92430 for an explanation)
  • Provision of research and development facilities

It may be impractical to look at all the issues in the same enquiry. It may be more sensible to proceed by breaking down the enquiry to a more manageable scale, perhaps by looking at all issues over a number of years rather than all at once. Such timetabling can be discussed with the business.

If breaking an enquiry down into smaller pieces like this, it is wise to be aware of the possible complication of intentional set-offs or series of transactions. For instance, the company in question may buy goods from a group manufacturer at a below arm’s length price in return for also providing it with free management services. For this reason, all transactions between the two same parties should be covered as part of the enquiry. If there are multiple transactions between two parties then all aspects should be considered as part of the risk assessment to ensure that any possibility of intentional set-offs is discussed early on in the process. See INTM421100 for more detail on intentional set-offs, and INTM440190 for issues that may arise from a series of transactions.

A rounded approach of looking at all transactions between two companies will also help ensure that any claim for a corresponding adjustment under Mutual Agreement Procedure is resolved more easily (see INTM423000 onwards).