Based on our experience, HMRC use specialists in this area primarily in a consulting role, rather than tying them to a specific office or team like Large Business, Mid-Size or Business, Assets & International. Their input may be linked to where taxpayers or advisers have relied on technical economics or modelling in their analyses, the issues involved are complex or contentious, the sums involved are large, or a combination of these factors. They may be consulted on enquiries, Advanced Payment Agreements (APAs), Profit Diversion Compliance Facility (PDCF) reports or Mutual Agreement Procedure (MAP) applications, or be full members of case teams. From what we see, their role is often to test, validate and, where necessary, challenge the analyses of taxpayers and/or advisers. But they may also bring new approaches to bear – profit-splits, game theory, finance, valuation, etc.
Is this the same picture in other jurisdictions? In the US, the IRS have very good economists working in different areas of transfer pricing, although the emphasis is perhaps placed a little more on comparables. Other tax authorities have economists and corporate finance specialists too, and sometimes in roles a little bit like those at HMRC.
It’s worth noting too that HMRC and tax authorities in several other countries use economists as experts in litigation involving transfer pricing.
