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A recent article in the FT announced that HMRC has “multiple live criminal investigations involving transfer pricing disputes”.

It is clear that HMRC’s focus on transfer pricing (and profit diversion more generally) has intensified and the approach to enquiries is perceived by clients as increasingly challenging. In-depth information requests, often involving extensive email reviews, as well as increased use of third party information notices and employee interviews, are commonplace. There is also an increased focus by HMRC on understanding any “behaviour” that led to any inaccuracy in the returns: this can have implications on both the penalty chargeable and assessing position (for discovery assessments) if HMRC considers there has been carelessness (or even “deliberate” behaviour). 

This FT article, and our experience of seeing HMRC’s Fraud Investigation Service (“FIS”) as integral members of TP enquiry teams, is further indication of HMRC’s intent to challenge TP arrangements and a reminder that large companies will not be treated any differently from other taxpayers when it comes to criminal investigations and sanctions. In this environment, the importance of managing all interactions and the provision of information to HMRC is key.

Increasingly enquiries are involving intensive and very exhaustive information gathering with great emphasis placed on evidencing any and all assertions made in determining and supporting arm's length pricing (including how much verification was performed locally of the functions performed in that period and evidence for that). 

HMRC will usually want to review emails and other contemporaneous records. They will be looking to see a consistent picture of the right people doing the right thing at the expected time.  Any inconsistencies on this are likely to raise concerns.