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HMRC internal manual

VAT Valuation Manual

HM Revenue & Customs
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Transfer Pricing - VAT implications: VAT assurance approach to Transfer Pricing Adjustments

A Transfer Pricing Adjustment is not in itself a supply nor consideration for a supply. It is an indication that transactions or arrangements may not have been at ‘arm’s length’ values. It may therefore point to an under valuation of the subject supply for VAT purposes.

Direct Tax colleagues have been advised in guidance to alert Indirect Tax colleagues where Transfer Pricing transactions being considered for direct tax purposes, may have an indirect tax implication. Similarly Indirect tax staff should be prepared to pass on details of Transfer Pricing transactions to Direct tax teams where a direct tax implication may be involved.

The suggested approach of VAT assurance when informed of a Transfer Pricing Adjustment should be as follows;-

  1. Identify the transactions which give rise to the Transfer Pricing Adjustment.
  2. Identify the supplies, acquisitions, or imports that arise as part of those transactions and their original treatment for indirect tax purposes.
  3. Consider whether there has been:
* Incorrect valuation or declaration of Customs Duty and/or import VAT on goods.
* A mis-valued UK supply or acquisition which allows the use of OMV powers (VATA 94 Sch 6 Para 1, Sch 7 para 1).
* A service provided for no consideration which may lead to a business/non-business apportionment of VAT incurred by the supplier or a tax charge under the VAT (Supply of Services) Order 1993 (SI 1993/1507).
* A mis-valued “reverse charge” on an imported service.
* A balancing payment which constitutes consideration, extra consideration, or a change to consideration for a supply (see paragraph 4 above).
  1. Where any of these are identified seek guidance initially, via the AAG or TAPE network, on ways to report/correct the potential loss.