Time to take a second look at the Transfer Pricing model for IP Portfolios?
Businesses, particularly large multi-nationals, have increasingly valuable IP portfolios which, typically, they look to manage in the most tax-efficient way.
HMRC is increasingly focussed on non-tangible assets, and in particular has been looking at Transfer Pricing where it has concerns that profits are being incorrectly diverted to low-tax entities based overseas (sometimes known as “hubs”). The result is its launch of a new Profit Diversion Compliance Facility. This facility enables companies who might have arrangements which are caught by transfer pricing regulations or the (relatively) new Diverted Profits Tax to disclose their structural and pricing arrangements to HMRC, agree those arrangements with HMRC, and/or make changes and settle any historic liabilities where necessary. HMRC hope that multi-nationals will prefer to regularise their position through the Facility rather than risk an intrusive, and potentially costly, full-scale HMRC investigation down the line.
HMRC has said it is concerned in particular that organisations have made incorrect assumptions or not implemented arrangements as originally intended/ declared to HMRC due to factors such as insufficient understanding of the rules or changes to the business models over time. It also identifies issues with taxpayers giving insufficient weight to the location of the control functions of assets over the legal ownership and over-reliance on inappropriate comparables. Companies who may be in that position, or who think they may be at risk of a full investigation, will have to weigh up the benefit of voluntarily using the Facility (with the carrot of a potential ‘softer touch’ by HMRC on any penalties) as against the risk of HMRC determining that the information provided is a basis for a much wider review of the company’s arrangements.Companies wishing to make use of the new facility will have until the end of 2019 to register.
For more information about corporate tax, please contact Elizabeth Middleton at firstname.lastname@example.org for information about intellectual property portfolios please contact Phil Bilney at email@example.com.