Finally escaping from Waterloo

THIS ARTICLE IS unusual in that it concerns an issue that is now largely historic and because it has a happy ending! The background is essential. There is also an interaction between the transfer pricing rules the provisions of FA 2003 Sch 23 and the accounting rules. The article below draws together these different elements to explain the previous unsatisfactory results for many companies in relation to transfer pricing and share schemes and the improvements contained in the new guidance issued by HMRC.

The Waterloo case

The story begins with a Special Commissioner's decision in Waterloo plc (SpC 301). The parent company in this case operated share incentive arrangements and extended these arrangements to employees of its non-UK subsidiaries as well as its UK employees.

In this case Waterloo established a trust in connection with an employee share option scheme (see Figure 1 )...