Government deliberates secondary adjustment to transfer pricing rules

HMRC is consulting on whether a secondary adjustment rule should be introduced into the UK’s transfer pricing legislation, as the government department continues its clampdown against tax avoidance.

The adjustment aims to counter multinationals that do not use the arm’s length principle, reversing any cash benefit that a multinational gains, while the UK will also impose an additional charge on any excess profit arising from the non-arm’s length pricing.

Although the government has not sought to introduce a secondary adjustment rule before, HMRC believes that the adjustment may address “the financial benefit arising from incorrect pricing”.

The rules are an already internationally recognised approach and are already part of the transfer pricing rules applied in many economies including the United States, Canada, France and other EU Member States. The secondary adjustment also keeps in line with the UK’s role in the OECD’s charge to tackle Base Erosion and Profit Shifting (BEPS).

The deadline for responses is 18 August 2016.