Transfer Pricing Enquiries: HMRC’s Approach And Recent Cases

Historically, there has been very little transfer pricing litigation in the UK. In fact, since the landmark case of DSG Retail Limited in 2009, only Blackrock HoldCo 5, LLC has determined a substantive transfer pricing issue.

However, there have been a growing number of cases on procedural matters, such as appeals of information notices and applications for closure notices, where the underlying substantive dispute relates to transfer pricing.

Although it is not necessarily the case that all of these underlying disputes will reach litigation, it is certainly evidence of the fact that transfer pricing enquiries are becoming more contentious, with HMRC making extensive requests for information before they will issue a closure notice.

These cases are also consistent with the increased numbers of transfer pricing enquiries and disputes that we are dealing with, particularly those involving large and complex multinational groups.

It is, therefore, helpful to understand the general approach HMRC take to transfer pricing enquiries, the information HMRC can legally require, and the further guidance that the recent procedural cases provide.

HMRC’s general approach

HMRC are open about the fact that they carefully select the transactions that they enquire into based, in large part, on the amount of tax at risk. In their International Manual, they state that “It is far more cost effective to target resources on transfer pricing cases where there is likely to be significant tax at stake” and, therefore, “Estimating how much tax may be at risk is a crucial part of the enquiry selection procedure…”

The fact that HMRC’s transfer pricing yield surged to £3.4bn in the 2024/25 year (nearly double the previous year), but the number of settled enquiries remained reasonably static, provides evidence that HMRC have successfully targeted some very high-value cases.

Of course, high value often means greater complexity and the need for a lot more fact-finding. An enquiry into the transfer pricing of a UK-headed multinational group, with over 500 subsidiaries, markets in 70 different countries, owning well-known brands (which is the example HMRC give of a company that would present significant scope for transfer pricing risk) would involve very substantial information requests from HMRC as just the initial requests will seek “to understand how the business trades; to identify who carries out what functions; to understand the nature, scope and volume of relevant inter-company transactions; and to see what profit accrues where.”

Despite the fact that HMRC say an initial request should be as complete as possible, in practice, HMRC will continue to seek large amounts of information after an initial request has been complied with. In particular, HMRC rely heavily on interviews with key individuals and contemporaneous documents, such as emails. It is, therefore, no surprise that enquiries can run on for extended periods of time.

Although HMRC aim to resolve the majority of transfer pricing cases within 18 months, and particularly complex or high-risk cases within 36 months, this is not what is happening in practice. As transfer pricing yield has increased, so too has the length of the enquiries, with the average age of settled enquiries in the 2024/25 tax year exceeding 40 months for the first time.

What can HMRC ask for and when should they close an enquiry?

Although HMRC should start by asking for information on an informal basis, if the information is not provided, HMRC have significant powers to require disclosure by issuing information notices under Schedule 36 of the Finance Act 2008. Notices can be issued to taxpayers, third parties, and financial institutions and, in addition, HMRC have powers to obtain information from other jurisdictions through exchange agreements and double tax treaties.

The main limitation on information that HMRC can require from a taxpayer is that it must be “reasonably required” for the purpose of checking the taxpayer’s tax position. This does not mean that HMRC must suspect there is a loss of tax before they issue a notice – they are entitled to ask for information simply to check the taxpayer’s return is correct. However, there is a limit to this, and HMRC cannot go on a “fishing expedition”, whereby they make broad requests for large amounts of documents in the hope that they find something useful. Requests may be onerous, but if they are disproportionate then the information is unlikely to be reasonably required.

Taxpayers must only produce the information that is within their “possession or power”, which has generally been interpreted as meaning that taxpayers must make a serious effort to obtain documentation that is not in their possession, but that may be within their power to obtain from another party. In addition, there is no requirement to produce privileged information, and taxpayers should always be careful about any decision to waive privilege.

Information notices set a deadline for the information to be provided to HMRC and, if the deadline is missed, penalties will become payable. Although this starts with a relatively small £300 penalty, there will then be daily penalties of up to £60 and, after 30 days, the daily penalties can go up to £1,000. It is, therefore, important that, if there is an issue with the information HMRC are requiring, the information notice is appealed within 30 days.

In a large-scale transfer pricing enquiry HMRC are going to want a lot of information before they are willing to close an enquiry and, in some cases, it can feel like the requests for information have become excessive. In this situation, taxpayers do have a key tool at their disposal – the ability to apply to the First-tier Tax Tribunal (the Tribunal) for a closure notice under paragraph 33 of Schedule 18 to the Finance Act 1998.

The Tribunal must direct HMRC to close the enquiry unless they are satisfied that HMRC have reasonable grounds for not giving a closure notice. HMRC will usually argue that they need further information before they can close the enquiry, but the case law is clear that HMRC do not need to pursue every line of enquiry to the end, as long as the officer can make an informed judgment of the matter (Eclipse Film Partners No 35 LLP v HMRC [2009] STC (SCD) 293 at para 19).

Relevant case law

Although there are a number of relevant cases that consider when information will be “reasonably required” or whether HMRC have “reasonable grounds” for not giving a closure notice, it is only relatively recently that we are seeing more of these cases in a transfer pricing context. It is helpful to see the approach the Tribunal is taking in these cases, as it can inform the approach to be taken by other taxpayers faced with a transfer pricing enquiry.

Lifeplus Europe Limited (Lifeplus) and information notices

The recent case of Lifeplus Europe Limited v HMRC [2026] UKFTT 797 (TC) concerned information notices issued by HMRC in a long-running enquiry into the transfer pricing between Lifeplus and its US parent company, in which HMRC reached a view that the Comparable Uncontrolled Price (CUP) method should have been used for the relevant transaction, rather than the Transactional Net Margin Method (TNMM).

During the course of the enquiry HMRC requested the parent company’s financial statements from Lifeplus, but initially accepted that they were not within Lifeplus’s power or possession. They then unsuccessfully tried to obtain both the parent company entity level financial statements and the consolidated group financial statements (together the financial statements) from the Internal Revenue Service (IRS).

Subsequently, although Lifeplus maintained that the TNMM was appropriate, with a view to resolving the dispute, it proposed some adjustments to HMRC’s CUP analysis based on information that was provided to it by its parent company. HMRC concluded that Lifeplus must therefore have the financial statements within its power or possession, and responded by issuing an information notice seeking the information (along with three further requests that were either complied with or withdrawn).

Lifeplus appealed the information notice and the issues before the Tribunal were (i) whether the financial statements were reasonably required; and (ii) whether the financial statements were within Lifeplus’s power or possession. The Tribunal found for Lifeplus on both issues.

On the first issue, the Tribunal thought there was “considerable force” in the submission that HMRC’s focus was on whether the CUP method should have been used rather than the TNMM, and noted that HMRC had not needed the financial statements to reject Lifeplus’s Transfer Pricing Policy Report and propose the CUP method. The Tribunal found that the financial statements would not provide further detail on the functional analysis of the entities, nor would they assist HMRC in understanding the functional profile of the businesses. As such, the Tribunal did not consider the financial statements were reasonably required.

While HMRC attempted to downplay the relevance of the underlying enquiry, the Tribunal made it clear that HMRC’s approach and the relevant transfer pricing methodologies and processes were the “lens through which any rational connection between the tax dispute and the documents requested in the Information Notice is to be viewed”. The nature of transfer pricing enquiries obviously weighed on the Tribunal as they noted the extensive information already provided and stated that:

“One pressing concern regarding transfer pricing documentation is the risk of overburdening the taxpayer with disproportionately high costs in obtaining relevant documentation, or in an exhaustive search for comparables that may not exist. Ideally, a taxpayer should not be expected to provide more documentation than is objectively required for a reasonable determination by the tax authorities of whether or not the taxpayer has complied with the arm’s length principle.”

As for the second issue, it was accepted that Lifeplus did not possess the financial statements, so the question was whether it was within its power to obtain them. The Tribunal was satisfied that Lifeplus had made a “serious attempt” to obtain the financial statements by asking the parent company’s CFO for the documents, following which the parent company declined the request on the basis that the owners of the privately-held company were entitled to their privacy and confidentiality, as afforded to them under US law. It was noted that the previous information had been provided to advisers for a limited purpose.

The Tribunal found that Lifeplus did not have a legal right to the documents, and there was no standing or continuing practical arrangement whereby Lifeplus had been permitted access to the financial statements. It is also of note that, although Lifeplus and the parent company had some officers in common, the Tribunal found that Lifeplus’s directors could not be compelled to act in breach of their statutory duties not to create a conflict of interest between the entities.

Refinitiv and closure notices

Refinitiv Limited & Ors v HMRC [2025] UKFTT 415 (TC) also concerned a lengthy transfer pricing enquiry, which had commenced at the end of 2015 and had involved over 1,000 individual information requests, over 300 meetings with HMRC, and 30 senior managers being made available to HMRC for questions.

HMRC eventually issued Diverted Profits Tax (DPT) charging notices to the companies for all relevant years, but the 2018 DPT charging notice was subject to an application for judicial review. HMRC issued closure notices for all years except for 2018 on the basis that HMRC may need further information following the outcome of the judicial review. As a result, the companies applied for closure notices/partial closure notices.

At the time of the hearing, the Court of Appeal had upheld the Upper Tribunal’s decision to dismiss the claim, but there had not been a decision from the Supreme Court on permission to appeal. While the Tribunal accepted that HMRC might in the future identify further relevant documents and that it was reasonable for HMRC to want to know the outcome of the judicial review, they determined that was insufficient to prove reasonable grounds for keeping the enquiries open in light of the “huge volume of material” already provided, the lack of any outstanding information requests, the cooperation of the applicant companies throughout the enquiry, and the Tribunal’s power to direct disclosure if necessary. HMRC were, therefore, directed to issue closure notices within 60 days.

What do these cases mean for enquiries?

Lifeplus and Refinitiv are not the only recent procedural cases with underlying transfer pricing disputes, but they are both particularly interesting in terms of the approach taken by the Tribunal. It is clear that the complex nature of transfer pricing disputes, involving protracted enquiries with onerous information requests, was highly relevant to the Tribunal’s decisions. In Lifeplus the Tribunal expressly stated the concern of overburdening the taxpayer with disproportionately high costs, and in Refinitiv the huge volume of material provided was a key factor that weighed in the Tribunal’s decision.

Taxpayers should, therefore, be able to take some comfort from the fact that the Tribunal is clearly sensitive to these issues in transfer pricing enquiries and should keep the relevant law and their rights in mind when enquiries are not progressing, and information requests have become excessively burdensome.

We are very likely to see the Tribunal grappling with these procedural issues again in the near future, and it may not be long until they have to delve into the substantive issues as well.

Macfarlanes is a pre-eminent law firm advising a global client base across Private Capital, Private Wealth, M&A and Disputes.

Visit our website to learn more about our services and how we can assist.