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

The Court of Appeal dismissed the appellants' challenge to charging notices to diverted profits tax (DPT) issued for the 2018 accounting period. Central to the decision was the construction of TIOPA Part 5 section 220 and the advance pricing agreement (APA) between the parties: the APA expressly covered specified chargeable periods (including a roll-back) from 1 October 2008 to 31 December 2014 and did not, on its true construction, "relate to" the 2018 accounting period for the purposes of section 220. The court held that temporal expressions in clause 3 of the APA ("duration", "currency", "years covered by this agreement") refer to the five-year term in clause 9; the APA therefore did not bind HMRC in relation to the 2018 period and did not preclude HMRC applying a different arm's‑length methodology (profit‑split) for the DPT calculation in 2018.

Background and parties

The claimants (three UK resident Thomson Reuters companies and Thomson Reuters Corporation) sought judicial review of DPT charging notices issued by HMRC on 20 August 2021 in relation to accounting periods ending 31 December 2018. The notices alleged taxable diverted profits arising from historic IP‑related services supplied by the claimants to a Swiss group company. The claimants relied on an earlier APA made with HMRC in January 2013 that set transfer pricing methodologies (largely a transactional net margin/cost‑plus approach) for specified services for the period 1 January 2010 to 31 December 2014 (and a roll‑back to 1 October 2008).

Nature of the claim and relief sought

• The claimants sought quashing of the final DPT charging notices to the extent they conflicted with the APA, declarations that the notices were invalid, and repayment of DPT already paid.

Procedural history

Foster J granted permission for judicial review on 16 June 2022 and transferred the claim to the Upper Tribunal (Tax and Chancery Chamber), which dismissed the claim in [2023] UKUT 00257 (TCC). The claimants obtained permission to appeal to the Court of Appeal.

Issues for decision

1. Whether the 2018 accounting period was a "chargeable period… to which an advance pricing agreement relates" under section 220 TIOPA such that the Tax Acts should be treated as applying in accordance with the APA for that period.
2. The proper construction of the APA (in particular clause 3 and its temporal expressions) and whether it exhausted pricing for the relevant services so as to prevent HMRC from applying a different methodology in later years or for DPT purposes.

Court's reasoning

The court emphasised the annual character of corporation tax and the statutory framework for APAs. It held that the natural approach is to identify the chargeable periods to which the APA "relates" by reference to the terms of the APA itself. The APA in this case expressly specified its term (five years plus roll‑back) and the clause 3 temporal expressions were ordinary synonyms referring to that term. To construe the APA as giving rise to an indefinite, continuing restriction on HMRC for unspecified future accounting periods (including years after the APA expired) would conflict with the statutory annual tax framework and the design of Part 5 TIOPA. The court further held that reliance on Veolia was inapposite because that case involved a different statutory context; it endorsed the Upper Tribunal’s analysis that the APA applied to the accounting periods it specified and did not bind HMRC in relation to 2018. The court noted HMRC’s concession that, had the DPT notices been inconsistent with the APA for the relevant period, the judicial review would succeed in this case, but it emphasised such a consequence is not necessarily automatic in other facts.

The appeal is dismissed. The Court of Appeal held that the APA related only to the chargeable periods expressly specified in the agreement (1 January 2010 to 31 December 2014, with roll‑back to 1 October 2008) and did not "relate to" the 2018 accounting period within section 220 TIOPA; accordingly the DPT charging notices for 2018 were not unlawful for being inconsistent with the APA.

On appeal from the Upper Tribunal (Tax and Chancery Chamber) (Michael Green J and Judge Swami Raghavan) [2023] UKUT 00257 (TCC). Permission to appeal to the Court of Appeal was granted by the Upper Tribunal in a written decision dated 28 November 2023. At first instance permission for judicial review was granted by Foster J on 16 June 2022.