The UK tax authority, His Majesty's Revenue and Customs (HMRC) has updated its International Manual. The new guidance INTM485025 has been included in the section of the manual dealing with transfer pricing: operational guidance and relates to evidence gathering.
The new guidance addresses HMRC's application of the six-step process for analysing risk within Chapter I of the OECD Transfer Pricing Guidelines and seeks to clarify its interpretation of the process and how this aligns with a transfer pricing analysis. HMRC notes that "risk assumption is only one of several aspects which are relevant to accurate delineation, and it is important to view this guidance in that context."
The guidance identifies the following risk analysis parts:
- identification of economically significant risks.
- contractual assumption of risk.
- functional analysis to determine which entities control risk.
- consistency between contract, conduct and allocation of risk
- pricing the transaction, taking into account the allocation of risk.
The selection of the most appropriate transfer pricing method and the nature and amount of the reward will depend upon a range of factors. The guidance also notes other aspects and includes examples.
Source: IBFD Tax Research Platform News