Refinitiv Limited & Ors, R (on the applications of) v The Commissioners for HMRC

An advance pricing agreement under Taxation (International and Other Provisions) Act 2010 has statutory effect only for the chargeable periods to which it relates. In that context, the phrase does not extend to every later period having a factual connection with transactions covered by the agreement. It applies to the periods specified by the agreement.

Arm’s length pricing is not determined in the abstract. It is part of calculating taxable profit for a particular accounting period. Accordingly, a time-limited agreement using a cost-plus method for earlier periods did not prevent HMRC from using a profit-split method in calculating diverted profits tax for a later period, although earlier services contributed to the later profit.

The claimants were United Kingdom companies in the Thomson Reuters group which supplied services enhancing intellectual property owned by a Swiss group company. HMRC and the claimants had entered an advance pricing agreement under Part 5 of the Taxation (International and Other Provisions) Act 2010. It covered accounting periods from 2008 to 2014 and used a cost-plus method for the relevant services.

HMRC later issued a diverted profits tax charging notice for 2018. It used a profit-split method and included returns associated with the 2018 disposal of the intellectual property. The claimants sought judicial review, contending that the notice unlawfully conflicted with the earlier agreement. The central issue was whether the 2018 accounting period was a chargeable period to which the agreement related under section 220.

1. The judicial review claim was dismissed. The 2018 diverted profits tax notice was not inconsistent with the advance pricing agreement.

2. Under section 220(1) of the Taxation (International and Other Provisions) Act 2010, an agreement relates to the chargeable periods which it specifies. The statutory context gives the phrase a constrained meaning. An agreement is an exception to the transfer-pricing provisions which would otherwise govern, and its displacement of those provisions should correspond with the periods the parties have identified.

3. The agreement’s recitals and clauses 3 and 9 made its duration clear: the accounting periods from 2010 to 2014, plus the stated roll-back period from 2008 to 2009. It did not relate to 2018. The court distinguished R (Veolia ES Nottinghamshire Ltd) v Nottinghamshire County Council [2010] EWCA Civ 1214, which concerned different statutory language and inspection rights.

4. The claimants’ argument was circular. The agreement’s cost-plus pricing could become legally relevant to 2018 only after it had been shown that the agreement related to that accounting period. The fact that services performed in 2008–2014 contributed to profits realised in 2018 could not itself establish that relationship.

5. Transfer-pricing provisions require an arm’s length calculation in order to calculate profits for a particular accounting period. They do not determine an abstract and permanently exhaustive price for historic services. Once the agreement had expired, HMRC could calculate 2018 profits under the statutory regime, using profit-split if that method was otherwise lawful. There was therefore no public-law error, abuse of power or irrationality requiring relief.

• Upper Tribunal (Tax and Chancery Chamber): Dismissed the transferred judicial review claim.
• Administrative Court: Foster J granted permission to bring the judicial review claim on 16 June 2022. The claim was subsequently transferred to the Upper Tribunal.