Not arm’s length

A company DS sold electrical goods and offered customers the chance to buy extended warranty agreements.

The liability to customers was insured or reinsured by an associated Isle of Man company. HMRC decided that the transfer pricing rules in TA 1988 Sch 28AA applied and opened an enquiry into DS’s returns.

HMRC and DS referred the case to the Special Commissioners under FA 1998 Sch 18 para 31A. The Commissioners reviewed the evidence and held that a provision had been made between DS and the Isle of Man company by means of a transaction.

At that time the same person was ‘directly or indirectly participating in the management control or capital’ of both companies (Sch 28AA para 1A(8)(b)).

This differed from the arm’s length provision which would have been made between independent companies and gave a potential advantage to DS in relation to UK...