Transfer pricing: loss-makers risk new penalties

HMRC’s new tax-penalty regime means that loss-making transfer-pricing arrangements face an increased risk of attracting a penalty. Peter Hann examines the pitfalls.

Following the merger of HM Customs and Excise and the Inland Revenue and a consultation exercise launched in 2006, HMRC will replace today’s different penalty regimes across the taxes with a unified regime. Under the new legislation, which is set out in Sched 24 of the Finance Act 2007, a single tax-penalty regime will apply to errors in returns or declaration of income tax, including National Insurance contributions, corporation tax, capital gains tax and value added tax. The new penalty regime applies to returns where the return period commenced on or after 1 April 2008, and the return was received on or after 1 April 2009.