corporate tax claims cannot be closed during a DPT review period

The change overturns a recent first-level court (FTT) ruling that ordered HM Revenue & Customs (HMRC) to issue corporate tax close notices even though a TPD review period was in progress. Classes. HMRC said the change is being made to ensure that DPT legislation “works as intended”.

“This change means that HMRC can continue to pressure companies with potential TPD liabilities to accept HMRC’s view on transfer pricing and resolve their disputes by amending their tax returns on transfer pricing. companies rather than risking DPT liability, ”said Sam Wardleworth, tax litigation expert at Pinsent Masons, the law firm behind Out-Law.

The legislation currently provides that the taxpayer can amend their corporate tax return to effect a transfer pricing adjustment during the first 12 months of the 15-month review period of the DPT, which means that the DPT debt is acquitted. Corporate tax is currently payable at 19% while TPD is payable at 25%.

However, if the taxpayer himself amends the return, there is no right of appeal and so it only works for a group that is happy to settle their dispute on HMRC terms, Wardleworth said.

The case recently examined by the FTT concerned a group of companies with Swiss capital. The group disagreed with HMRC’s transfer pricing analysis but wanted HMRC to issue corporate tax close notices so that they could be appealed against. which essentially means that once the dispute is resolved, the corporation tax would be payable rather than the TPD, which would be more favorable to the taxpayer.

Once a corporate tax investigation is opened, the taxpayer cannot bring their dispute to the tax court until HMRC issues a closing notice stating the amount of tax it is paying. it considers due, which the taxpayer can appeal to. If HMRC refuses to issue a closure notice, the taxpayer can ask the TTF for an instruction that HMRC should issue a closure notice.

In DPT disputes if the corporate tax closure notices are not issued during the DPT review period, the companies concerned would be out of time to modify the declarations and their only solution would therefore be to appeal the ‘DPT notice at the end of the review period. , but that would mean that any tax would be payable at the highest DPT rate.

The change means that HMRC will not be able to close a corporate tax investigation of DPT chargeable profits before the end of the DPT review period – and therefore they cannot be asked to do so. by the FTT.

The change came into effect immediately on October 27 and applies to any request for a corporate tax closure notice made from September 27, 2021, the date of publication of the TTF decision.

Another change in TPD rules announced in the budget is beneficial to taxpayers. This changes when the taxpayer can make a voluntary change to their corporation tax return from the first 12 months of the 15-month TPD review period to any time during that period, except for Last 30 days. This change also takes effect from October 27 and will apply to investigations already underway.

The DPT is aimed at multinationals operating in the UK which structure their business to avoid establishing a permanent establishment in the UK or where there are related party agreements, which “lack economic substance” to operate tax asymmetries. This is a separate tax from corporation tax.

If HMRC considers that the DPT is payable, it issues a billing advice indicating the amount of the DPT to be paid. Following receipt of a billing notice, a company has 30 days to pay any DPT due and HMRC has 15 months to review the bill to DPT. The review period gives HMRC the opportunity to try to come to an agreement on the amount of TPD due. The tax notice can only be appealed at the end of the examination period.

Luisa D. Fuller