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HMRC internal manual

International Manual

Transfer pricing: operational guidance: working a transfer pricing case: after the settlement

Future accounting periods

If it is concluded that a business’s transfer pricing policy produces the arm’s length result then, provided nothing changes, it is tempting to ignore transfer pricing in future accounting periods. But case teams should always recognise that a change in trading conditions or the market will almost inevitably produce a change in price between independents, or at least an attempt by the party losing out to change the price. Circumstances may arise that would cause an independent to either change its overall pricing policy or make adjustments to it. Parties not at arm’s length may not be so sensitive to changes in market conditions.

The guidance on risk assessment at INTM482000 will help decide when it may be appropriate to check the business’s transfer pricing policy in future. In particular, case teams should be aware of business developments, for example, changes in function or risk, which might be expected to impact the business’s transfer pricing.

It is legitimate to conclude that it would be better to look at transfer pricing in one year and not another. It is possible to consider one year and then ‘roll back’ the conclusions reached to previous years, provided that it is valid to do so - see INTM483080.

Where a transfer pricing enquiry has resulted in an adjustment to a business’s returned profits to put them on an arm’s length basis, the business may well look for assurances that HMRC will not enquire into transfer pricing for a certain period into the future. If the business undertakes to make future returns on the basis agreed for years covered by the settlement and to notify HMRC of any material change in the circumstances of the business or in market conditions in those future periods (with a view to re-negotiation of the agreed basis, if necessary), then this might seem an entirely reasonable request. However, the case team must not enter into any arrangement that amounts to a forward agreement and can give no guarantee that a future return will not be the subject of a transfer pricing enquiry. The only comfort it can give to the business regarding future years is that where there has been no significant change in circumstances or conditions a return made on the basis agreed for the enquiry period will be looked upon as presenting a low tax risk. The only way in which the business may be able to gain certainty in relation to future years is through the formal Advance Pricing Agreement process (INTM422000), if the case is considered to be appropriate for an APA.