TCRM2210 - Managing our relationship with large business customers: HMRC Framework for Co-operative Compliance

It should be noted that real time working of Transfer Pricing issues (outside of APA/MAP or formal enquiries) is governed by guidance within our International Manual at INTM480540 and INTM480550).

The term co-operative compliance has been developed by the OECD to describe the process where tax authorities look to effectively manage risk with large and complex customers. OECD is clear that “co-operative compliance approach is based on co-operation but with the purpose of assuring compliance, which is to say payment of the right amount of tax at the right time.”

This Framework for Co-operative Compliance is the set of principles that both large businesses and HMRC should apply to how they work.

The framework will be used as part of HMRC’s existing approach to large business tax risk management. HMRC will view continued compliance with the framework as an indicator of lower-risk behaviour, and non-compliance with the framework as an indicator of higher-risk behaviour.

Professional Working

  • both parties to promote a professional, collaborative relationship which is based on principles of transparency and justified trust
  • both parties to engage in open and timely dialogue to discuss tax planning, strategy, risks and significant transactions. Businesses to fully disclose any significant uncertainty in relation to tax matters
  • both parties to respond to queries, information and clearance requests in a timely fashion and to ensure that the other party is informed about how issues are progressing, especially those that are complex or difficult
  • both parties to seek to resolve issues before returns are filed where possible.
  • businesses to make fair and accurate disclosures in tax returns, reports and documents filed with or submitted to HMRC, as required by law
  • both parties to work proactively together, to agreed timescales, to resolve tax disputes. HMRC will work within the Litigation and Settlement Strategy
  • where recourse to the Tribunal is required to resolve tax disputes, both parties to maintain a professional working relationship throughout the process
  • businesses to use HMRC’s published escalation route where other disagreements arise between both parties and a reasonable solution cannot be reached

Business Governance and Tax Planning

  • businesses to be open and transparent with regard to decision making, governance and tax planning, keeping HMRC informed of who has responsibility, how decisions are reached, how the business is structured and where the different parts of the business are located
  • businesses to structure transactions in a way that aligns with commercial and economic activity and does not lead to an abusive tax result
  • businesses to structure transactions in a way that gives a tax result they reasonably believe is not contrary to the intentions of Parliament
  • in all cases, businesses should ensure transactions are structured in a way that is consistent with a co-operative compliance relationship with tax authorities

Risk Management

  • HMRC to apply an approach to tax risk management based on openness and timely dialogue, setting out the specific tax risk identified to avoid unnecessary wide-ranging enquiries
  • both parties to discuss significant risks, or transactions with significant tax implications, on a “real time” basis where possible (i.e. pre-transaction or pre-return)
  • HMRC will prioritise resource to work with customers in areas of:
    • absolute risk
    • genuine uncertainty, and / or
    • commercial urgency.