The increased global focus of governments on tax avoidance means a handful of international law firms have been pushing their transfer pricing practices to the fore recently.
In July Macfarlanes announced the appointment of Martin Zetter to the new role of head of transfer pricing and senior economist in its tax and structuring group. Zetter joined the firm from Ernst & Young, where he was a director in its financial services transfer pricing group.
‘The increasing importance of transfer pricing has put corporations and funds under pressure to adopt a holistic approach to structuring,’ said Ashley Greenbank, head of the tax and structuring group at Macfarlanes. ‘We see Martin’s appointment as an opportunity to complement our existing transfer pricing and tax structuring expertise and enhance our offering to clients.’
Zetter’s move comes after Freshfields Bruckhaus Deringer moved its economist Rupert Macey-Dare from its dispute resolution practice into its transfer pricing team last year, where he now spends 50% of his time. Olswang has also told LB that it is looking to recruit a transfer pricing manager at the moment.
Boards of companies have become much more sensitive to their tax affairs, including transfer pricing. The announcement of the general anti-avoidance rule (GAAR) in the last Budget has heightened the anxiety of UK corporations and could keep transfer pricing lawyers busy for the foreseeable future.
The UK is catching up with continental Europe and the US in terms of law firms getting involved. It was once seen as a last resort to bring a law firm into a transfer pricing arrangement, usually when a matter had reached the courts.
Historically the accounting firms have dominated transfer pricing work in the UK. However, Freshfields proved to be ahead of the game when it hired Danny Beeton from Grant Thornton in 2009 to head its newly formed transfer pricing practice.
‘We are in austere times and transfer pricing is an area which tax authorities naturally focus on.’
Batanayi Katongera, Olswang
‘The market likes to buy transfer pricing from lawyers because many believe it’s too intellectual for accountants. They like to buy it from us and it’s a great market,’ said Beeton.
One particular growth area within transfer pricing is mediation with HMRC, which appears to have taken the place of headline-grabbing big transfer pricing litigation cases. Although this preference by HMRC may harm contentious tax practices, tax lawyers are well-versed in this method of alternative dispute resolution as well.
In 2009 there was a raft of transfer pricing litigation going through the courts, including the AstraZeneca case, in which Freshfields played a major role. AstraZeneca had to pay HMRC £505m when the case concluded in 2010.
However, since then the expected tide of transfer pricing litigation has not materialised and some questioned whether Freshfields was premature in investing in a transfer pricing practice when none of its Magic Circle peers seemed interested.
Macfarlanes’ Zetter said that caselaw was the reason why transfer pricing litigation hadn’t taken off in the UK. ‘The upshot of cases like DSG v HMRC [2009] is that litigation doesn’t help either side very much because the points you’re asking are points that the court isn’t very well able to answer,’ he said.
The growing prevalence of mediation as a viable alternative in this area was recently demonstrated by Peter Nias leaving his role as a transfer pricing specialist at McDermott Will & Emery and joining the Bar at Pump Court Tax Chambers to focus on mediation work.
‘Mediation is potentially going to explode,’ said Batanayi Katongera, head of transfer pricing at Olswang. ‘The way HMRC sees its mediation programme working is in areas of tax that have potential multiple tax answers. Transfer pricing is your number one example of that.’
Although Katongera agreed that the days of big transfer pricing litigation cases are over, he said this does not mean that the contentious work has gone away.
‘We are in austere times, revenues are down and transfer pricing is an area which tax authorities naturally focus on and so the number of enquiries extending into arbitration-type activities is increasing and it’s these sorts of areas that lawyers are traditionally comfortable with,’ he said.
A significant part of Olswang’s practice is managing disputes with HMRC on behalf of clients. According to Katongera, the advantage his team offers over accountancy firms is that law firms tend to approach the matter from a legal angle, considering the potential litigation outcome should a case get to court. This, he claimed, is something that accountancy firms are not equipped to do.
Outside of the UK, the leading international transfer pricing practice belongs to Baker & McKenzie, which has a global practice that incorporates over 200 individuals. Heavy hitters within the team include Caroline Silberztein and Mary Bennett, who joined the firm’s global tax practice last year from the Organisation for Economic Co-operation and Development (OECD), where they were two of the organisation’s leading tax officials.
According to Richard Fletcher, head of transfer pricing at Baker & McKenzie in the UK, there have been other important changes that will keep the team busy.
‘A major change is the OECD’s update of its guidelines on intangibles. This will dictate to quite an extent how superprofits from an international business, which can be a vast percentage of overall group profit, should be split across taxing jurisdictions,’ Fletcher said.