Refinitiv v HMRC – Court of Appeal upholds Upper Tribunal Decision
R (Refinitiv Limited and ors) v HMRC [2024] EWCA Civ 1412: Court of Appeal dismisses appeal by taxpayer companies from decision of UT in JR proceedings concerning the temporal scope of an Advance Pricing Agreement (APA)
The Court of Appeal has today handed down judgment in an appeal brought by the taxpayer companies against the Upper Tribunal’s decision in JR proceedings, against HMRC's decision to issue Diverted Profits Tax (DPT) notices charging them to DPT of approximately £167m.
The taxpayers included UK companies in the Thomson Reuters group. The UK companies provided services between 2008 and 2014 to Thomson Reuters Global Resources (TRGR) – a Swiss resident entity which held valuable IP, disposed of in 2018.
The DPT charges related to the 2016 to 2018 chargeable periods (but the JR proceedings concerned the charge for the 2018 chargeable period only), and were calculated by reference to what HMRC considered was the arm’s length compensation for the IP services that the taxpayer companies should have received for providing their services to TRGR, in accordance with the transfer pricing rules in Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA). The taxpayers contended that the notices were unlawful in the public law sense because the calculation of the arm’s length compensation was said to be inconsistent with the terms of a prior APA entered into between HMRC and the appellants in 2013, and expressly stated to apply to accounting periods 1 January 2010 to 31 December 2014, with a roll back period from 1 October 2008 to 31 December 2009. The appellants argued that the periods to which the APA applied extended to services that continued after the end of the accounting period ending 31 December 2014.
The Court of Appeal (Sir Launcelot Henderson with whom Whipple and Underhill LJJ agreed) dismissed the appeal, upholding the UT’s conclusion that accounting periods from 1 January 2015 onwards lay outside of the temporal scope of the APA, and therefore did not “relate to” the accounting period with which the DPT notices were concerned for the purposes of s.220(1) TIOPA. Accordingly, those notices were not inconsistent with the APA.
The Court held that the question of whether an accounting period was one to which an APA “relates” for the purposes of s.220(1) TIOPA was to be answered by examining the terms of the APA in issue (at [69]). In the context of corporation tax (an annual tax), the question was what chargeable periods the APA makes provision for relating to one or more of the matters mentioned in s.218(2) TIOPA. In this case, the APA made provision for matters during its specified 5-year term (and a roll back period that had expressly been provided for), only, and thus those were the only chargeable periods to which the APA “related”. That approach was supported by the wording of s.224 TIOPA, which explicitly referred to an APA as containing “provision relating to chargeable periods” (at [70]). The Court held that the terms of the APA, read in context, provided no support for the notion that the agreed transfer methodology in the APA should apply for a potentially indefinite number of future accounting periods, once the term of the APA had come to an end (at [74]).
In these proceedings, HMRC proceeded on the basis that the public law challenge to the DPT notices would succeed if found to be inconsistent with the terms of the APA. However, the Court emphasised that in different factual circumstances, the fact that the issue of a DPT notice is found to be inconsistent in some material respect with the terms of an APA may not preclude HMRC from legitimately deploying further arguments (at [77]).
Watch this space re any further appeal.
Marika Lemos and Alice Defriend acted for HMRC (led by John Brinsmead-Stockham KC). A copy of the Court of Appeal decision can be found here.
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