§ Mr. SayeedTo ask the Chancellor of the Exchequer when he plans to publish the guidance relating to the clearance procedures and the approach of the Revenue regarding transfer pricing under the legislation brought into effect on 1 July 1998; what advice he has issued to large companies with connected subsidiaries around the world; and if he will make a statement. [72315]
§ Dawn PrimaroloThe new transfer pricing legislation (Schedule 28AA to the Taxes Act 1988) is specifically allied to the advice on transfer pricing in theTransfer Pricing Guidelines for Multinational Enterprises and Tax Administrations published by the Organisation for Economic Co-operation and Development. These Guidelines establish internationally accepted rules for transfer pricing and provide multinational taxpayers with considerable assistance in making an accurate return in relation to arrangements with affiliates around the world.
Additional guidance has been provided by the Inland Revenue in two articles in its Tax Bulletin. The first, dated October 1998, gave advice on funding arrangements and confirmed that existing clearance procedures (as described in an article in Tax Bulletin in June 1995) would continue. It also explained record-keeping requirements. The second article, dated December 1998, explained the application of the general penalty provisions in transfer pricing cases.
As announced on Budget Day last year, legislation will be introduced in the forthcoming Finance Bill to govern Advance Pricing Agreements (APAs) between taxpayers and the Inland Revenue. APAs enable taxpayers to agree in advance with the Inland Revenue how complexities in applying the arm's length principle to cross-border transactions which cannot be fully clarified by reference to the published guidance are to be clarified. Draft clauses and a draft Statement of Practice were issued for consultation on 17 December 1998.
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§ Mr. MacleanTo ask the Chancellor of the Exchequer what estimate he has made of the number of businesses which will be affected by the new rules on transfer pricing which were announced in the 1998 budget; and what will be the average cost per business. [70688]
§ Dawn Primarolo[holding answer 15 February 1999]: The new transfer pricing legislation is designed to ensure that arm's length prices are used in calculating the tax effects of international transactions between associated businesses. It will impact on those businesses at the larger end of the spectrum of UK multinational groups and UK subsidiaries of foreign parents. It is estimated that there are between two and three thousand of these.
The average initial compliance cost per business is estimated to be in the range £11,000 to £27,000. The average recurring compliance cost is expected to be much less.