BKM505200 - The Code commitments – relationship: example

Following a risk assessment, HMRC opened an enquiry into a bank’s tax computations, explaining that there were concerns around intra-group cross-border transactions. The bank provided the requested details of the relevant transactions, as well as the underlying documents.

HMRC discovered two separate transfer pricing errors. These errors related to transactions having different treatment in the tax computations of the group entities to the treatment in the entities’ accounts. The bank was required to make significant adjustments to its tax computations.

The bank worked with HMRC and jointly agreed a plan to review and improve its procedures going forward. The bank created a proposal of how the objectives would be met, and this proposal was shared with HMRC for comment and suggestions. The bank agreed to share the findings of the review.

The bank brought in an outside consultant to review its transfer pricing and tax computation procedures. The consultant identified that the errors had been made due to the tax department making assumptions about the treatment of the transactions in the accounts which proved to be incorrect. The consultant concluded that these were isolated errors, and not an indication of systematic failures, but did make recommendations for improvements to the bank’s internal guidance.

The consultant and tax department gave a joint presentation to HMRC on the findings of the review and collaborated with HMRC on updating the internal guidance. A meeting was arranged for the following year to evaluate the impact of the changes.