Refinitiv Ltd & Ors v HMRC: Limitation of APA's Scope to Specified Chargeable Periods

Introduction

The case of Refinitiv Ltd & Ors v Commissioners for His Majesty's Revenue and Customs ([2024] EWCA Civ 1412) was heard in the England and Wales Court of Appeal (Civil Division) on November 15, 2024. This judicial review centered on the lawfulness of Diverted Profits Tax (DPT) charging notices issued by HM Revenue and Customs (HMRC) to three UK-resident companies within the Thomson Reuters group, collectively referred to as "TR UK." The primary issue was whether these DPT notices were inconsistent with the terms of an Advance Pricing Agreement (APA) previously established between TR UK and HMRC.

Summary of the Judgment

The Court of Appeal upheld the decision of the Upper Tribunal, dismissing the claimants' judicial review. The core finding was that the APA, which was in effect from January 2013 to December 2014, did not extend its scope to the 2018 accounting period. Consequently, the DPT notices issued for 2018 were deemed lawful and not inconsistent with the APA. The judgment emphasized the temporal limitations of APAs and clarified that such agreements do not bind HMRC beyond their specified terms unless renewed.

Analysis

Precedents Cited

The judgment referenced several key precedents:

R (Veolia ES Nottinghamshire Ltd) v Nottinghamshire County Council [2010] EWCA Civ 1214 – This case dealt with statutory interpretation, specifically the breadth of terms like "relating to."
In re Preston [1985] 1 AC 835 and R v IRC, ex parte Unilever plc [1996] STC 681 – These cases addressed the abuse of power under public law principles.
Al Fayed v Advocate General for Scotland [2004] STC 1703 and Gresham Life Assurance Society v Attorney-General [1916] 1 Ch 228 – These cases explored the limits of HMRC's powers to enter into binding agreements regarding future assessments.

The Upper Tribunal considered these precedents to determine the appropriate interpretation of statutory language, especially concerning the relationship and temporal scope of APAs relative to DPT notices.

Legal Reasoning

The central legal question was the interpretation of section 220(1) of the Taxation (International and Other Provisions) Act 2010 (TIOPA), which dictates the effect of an APA on chargeable periods. The court analyzed whether the APA, which covered transactions from October 2008 to December 2014, extended its influence to the 2018 accounting period.

The claimant's argument hinged on the notion that activities covered by the APA influenced profits in 2018, thereby warranting the APA's applicability to that period. However, the court found that APAs are inherently time-bound, affecting only the specified chargeable periods unless explicitly renewed. The agreement's terms clearly delineated its coverage, and there was no statutory basis or contractual provision to extend its scope beyond its termination.

Additionally, the court highlighted the lack of legislative intent to allow APAs to influence future chargeable periods outside their agreed term, especially when they face new tax regimes like DPT introduced after the APA's termination.

Impact

This judgment reinforces the principle that APAs have a defined temporal scope and do not automatically extend beyond their agreed terms. Taxpayers and HMRC must recognize that post-APA actions, such as the introduction of new taxes or methodologies, are outside the APA's purview unless the agreement is renewed. This clarity helps prevent indefinite reliance on outdated agreements and ensures that new tax instruments can be applied without being hindered by past arrangements.

For future cases, this sets a clear boundary on how APAs interact with subsequent tax measures, ensuring that both taxpayers and tax authorities understand the temporal limitations of their agreements.

Complex Concepts Simplified

Advance Pricing Agreement (APA)

An APA is a binding agreement between a taxpayer and HMRC that sets out the transfer pricing methodology for certain transactions over a specified period. It provides certainty and reduces the risk of future tax disputes regarding those transactions.

Diverted Profits Tax (DPT)

DPT is a tax introduced to counteract the diversion of profits from the UK to low-tax jurisdictions through aggressive tax planning by multinational corporations. It applies a flat rate to profits that are deemed to have been artificially diverted.

Chargeable Period

A chargeable period refers to the specific accounting period for which taxes are assessed. In this case, the APA was limited to chargeable periods from 2008 to 2014.

Transactional Net Margin Method (TNMM)

TNMM is a transfer pricing method that examines the net profit relative to an appropriate base (like costs) that a taxpayer realizes from a controlled transaction. It's used to ensure profits are aligned with the arm's length principle.

Conclusion

The judgment in Refinitiv Ltd & Ors v HMRC underscores the importance of clearly defined temporal boundaries within APAs. By affirming that the APA did not extend its applicability to the 2018 chargeable period, the court reinforced the principle that tax agreements are confined to their specified terms unless renegotiated or renewed. This decision provides clarity for both taxpayers and tax authorities, ensuring that new tax measures like DPT can be implemented without being constrained by previous agreements. Ultimately, the ruling promotes certainty and predictability in tax administration, aligning with the legislative intent to manage transfer pricing and profit diversion effectively.