Clause 30 - Provision not at arm's length: transactions between UK taxpayers
Finance Bill
10:45 am
Mr Mark Prisk (Shadow Minister, Economic Affairs; Hertford and Stortford, Conservative)
We come now to the important, if not easily comprehensible, issue of transfer pricing and thin capitalisation. Clause 30 and schedule 5 change the way in which prices are set between associated businesses for transactions within the United Kingdom. The clause will require arm's-length pricing, and the whole process, of course, will have to be supported by extensive documentation. Committee members will immediately recognise—as I am sure do you, Mr. McWilliam—that that represents, potentially, a huge compliance burden. Given the complexity of UK-UK transfer pricing, I shall give some examples to illustrate my point.
Let us consider head office costs. Most groups of companies do not make arrangements for each and every transaction or transfer between companies to be priced in the manner required by the legislation, so there will be significant change there, in terms of recharging. UK groups often find that it is easier not to charge interest on intra-group loans; or, at least, if they do charge interest, there is no need to charge at market rates. That will have to change because of the clause. Committee members will realise that it could have a significant adverse effect if loans have to be charged on an arm's-length basis within groups, as is required in this and subsequent clauses.
Another example—and a problem that is particularly difficult to resolve—is that of intellectual property. Companies may have to value their intellectual property and start charging royalties to UK-group companies for that use. We can all think of a number of market sectors in which that will be particularly relevant. Examples include oil and gas, and the pharmaceutical industry.
The Chairman's attention having been called to the fact that eleven Members were not present, he suspended the proceedings.
Other Members having come into the Room and eleven Members being present, the proceedings were resumed.