The line between “foreseeably relevant” tax information and a pure fishing expedition is becoming a live controversy in transfer pricing audits – and a recent UK Tribunal case offers timely lessons for multinationals.
For African and ME groups facing increasingly assertive audits, this fact pattern will feel very familiar.
What information was requested?
HMRC’s( UK tax authority) information notice targeted documents well beyond the UK subsidiary’s books and records. Specifically, it sought:
• Grouplevel consolidated financial statements of the US parent.
• USentitylevel financial statements of the parent company.
The UK entity had already provided:
• Its own statutory accounts and management information.
• A full TP report setting out the functional analysis, choice of method (TNMM), selection of comparables, and support for its operating margin as arm’s length.
The message to the taxpayer was clear: the authority wanted to see “the whole group picture” and use the US parent’s profitability as an additional lens for reviewing the UK margins.
Arguments for disclosure – the authority’s perspective
The tax authority’s case for disclosure, in short, was:
• It needed groupwide profitability and the US parent’s cost base to check whether the UK entity’s profit was aligned with its functions, assets and risks.
• It wanted to stresstest the onesided TNMM by using the parent’s numbers to see if the tested party had been correctly delineated or if profit had been shifted offshore.
• It argued that overall group profitability would help assess whether the chosen comparables and the UK margins were realistic given the business model.
Arguments against disclosure – the taxpayer’s perspective
The taxpayer’s counterarguments were:
• In a properly applied onesided TNMM, focus should stay on the local tested party’s financials and comparables; demanding the nontested parent’s full accounts contradicts that logic.
• The authority had not shown a clear, specific link between the US financial statements and the UK TP issues; general curiosity about group profitability is insufficient.
• Asking for “all” of the parent’s financial statements, without narrowing to defined risks or data points, amounted to a fishing expedition rather than a targeted request.
• The UK subsidiary had no legal or practical right to obtain the US parent’s confidential accounts, so the documents were not within its possession or power and could not be compelled.
Tribunal decision
The Tribunal held that the requested US parent financial statements were not “reasonably required” for HMRC to check the UK entity tax position.
In its decision, the Tribunal referred to the OECD Transfer Pricing Guidelines, noting that where a onesided method has been properly applied, tax authorities generally have no reason to request detailed financial data for nontested overseas group entities.
Why this matters for Africa and ME MNE’s
Tax authorities across Africa and the Middle East are rapidly upgrading their transfer pricing capabilities, often drawing on OECD standards and the experience of more mature jurisdictions. That makes this kind of case highly relevant, even outside the UK.
Three practical takeaways for regional multinationals:
1. Design TP files to show sufficiency of local data
Your documentation should clearly demonstrate why the tested party’s financials and external comparables are enough to support the arm’s length result. The stronger that story, the harder it is for an authority to argue that upstream group data is “reasonably required.”
2. Challenge broad, untargeted requests
When authorities demand extensive headquarterslevel information with no clear link to a defined TP issue, you can – and should – ask them to explain the foreseeable relevance. Requests should be specific, proportionate, and anchored in identified audit hypotheses.
3. Map “possession or power” for local entities
Many African and ME subsidiaries do not have a contractual right to access detailed group accounts. Understanding, and documenting, these legal and practical limitations can be crucial when responding to information notices.
As regional tax authorities increasingly look “up the chain” in TP audits, cases like this help define the boundaries of legitimate scrutiny. For African and ME multinationals, understanding – and using these boundaries can make the difference between a manageable audit and a costly, intrusive fishing expedition.
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