Inland Revenue 26
17 March 1998
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TRANSFER PRICING AND ADVANCE PRICING ARRANGEMENTS
Following consultation, a statutory procedure for Advance
Pricing Arrangements (APAs) is to be introduced in the next
Budget, as part of a package of measures announced by the
Chancellor today. APAs provide a way for taxpayers (mainly
multinational companies) to agree in advance with the tax
authorities that their transfer pricing arrangements are
acceptable to those authorities.
Taxpayers will not be required to enter into an APA. But for
those who wish to do so, the procedure will offer comfort that
the transfer prices reflected in their self assessment return
will be accepted by the Inland Revenue. The necessary
legislation will be introduced in the next Budget following
further consultation with interested parties later this year.
The introduction of a statutory basis for APAs will assist
those companies operating in an increasingly global economy,
and will place the UK among the world's most modern tax
regimes in its approach to transfer pricing.
DETAILS
1. The Inland Revenue Consultative Document on the
modernisation of the transfer pricing legislation issued last
October invited views on whether there should be a wider role
for APAs. There was strong support for this proposal in the
light of the Government's intentions to bring transfer pricing
within self assessment, and a common preference for the
introduction of a statutory process. Many of those responding
to the Consultative Document were keen to have further
discussions with the Revenue about the form of APAs.
2. The Government has decided that a statutory procedure
for APAs will be introduced but wishes the Inland Revenue to
consult further with taxpayers in order to ensure that it will
meet taxpayers' needs.
NOTES FOR EDITORS
1. "Transfer pricing" describes the setting of prices by
associated enterprises for transactions between them. There
is general agreement among tax authorities that such prices
should be set by reference to the arm's length principle.
2. UK legislation announced today (see IR press release 25
"Modernisation of the transfer pricing legislation: outcome of
consultations") will require taxpayers to incorporate the
arm's length principle in their self assessment (SA) return.
The announcement follows consultation arising from the
publication in October 1997 of an Inland Revenue Consultative
Document, "Modernisation of the Transfer Pricing Legislation".
3. APAs can help taxpayers by enabling them to make their
SA return in the knowledge that their transfer prices meet the
arm's length standard and will be acceptable to the Inland
Revenue for as long as the APA remains in force. Comments were
invited about APAs in the Consultative Document and there was
universal, strong support for making APAs more readily
available to taxpayers, and a common preference for the
introduction of legislative provisions for dealing with APAs
from a wide range of taxpayers, tax professionals and business
and professional representative bodies.
4. The UK has no statutory arrangements in place to enable
taxpayers to participate in APAs. The Inland Revenue have in
recent years used powers granted under the terms of Double
Taxation Conventions to articipate in APAs with tax
authorities which have introduced legislation enabling them to
enter into APAs.
5. In the light of the helpful and positive responses to
the Consultative Document, the Government has decided that
there should be further consultation to ensure that the
statutory procedure it proposes for APAs meets the needs of
taxpayers wishing to take advantage of it. The Chancellor has
authorised the Inland Revenue, therefore, to enter into
discussions about the detail of the new arrangements.
Information about the process of consultation will be
announced in a later press release.
INLAND REVENUE PRESS RELEASE
Media enquiries to: 0171 438 6692/6706/7327 (Out of hours 0860
359544)
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only)