EXPLANATORY NOTE

1. This clause provides supplementary rules for advance pricing agreements under clause 76.

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2. Subsection (1) provides that an advance pricing agreement can cover periods before the agreement is made. This may happen, for example, where a chargeable period covered in the proposal for an agreement ends while the agreement is still being negotiated. This rule does not override the rule in clause 76 (8)] that an agreement can only cover chargeable periods ending after the Act is passed.

3. Subsection (2) sets out circumstances in which an advance pricing agreement does not have effect. These are:

from a time in respect of which the Inland Revenue has revoked the agreement;

from a time in respect of which the taxpayer has failed to comply with a necessary condition of the agreement (for example by failing to provide reports or other information the provision of which is a condition of the agreement continuing to have effect);

where any other necessary condition of the agreement is not satisfied.

4. Subsection (3) says that, where an advance pricing agreement is inconsistent with a mutual agreement under a double taxation agreement, the mutual agreement takes precedence.

5. Subsection (4) places a duty on taxpayers who are parties to an advance pricing agreement to supply the Inland Revenue with reports and other information.

6. Subsection (5) nullifies an advance pricing agreement where a person has fraudulently or negligently provided the Inland Revenue with false or misleading information in negotiating the agreement.

7. Subsection (6) provides that where an advance pricing agreement is modified or revoked, the change takes effect from a time determined by the Inland Revenue.

8. Subsection (7) enables effect to be given to a tax adjustment arising from an advance pricing agreement for a chargeable period which had ended, or was in course, when the agreement was reached.

9. Subsection (8) imposes a penalty, up to a maximum of £10,000, for fraudulently or negligently providing false or misleading information to the Inland Revenue in applying for an advance pricing agreement.

10. Subsection (9) imposes penalties, in accordance with section 98 of the Taxes Management Act 1970, for failing to furnish any information or document required in connection with an advance pricing agreement, or for furnishing incorrect information. Failure to furnish information or documents carries an initial penalty of up to £300 with a maximum penalty of £60 for each day for which the failure continues after the initial penalty is imposed. There is a maximum penalty of £3,000 for furnishing incorrect information.