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Conducting a transfer pricing risk assessment is not a mechanistic process. Although this chapter of the guidance has provided a number of specific risk indicators that case teams should look for, there is no substitute for knowing the business well and gathering detailed information. »Ê¹ÚÌåÓýapp most important thing that needs to be understood in a risk assessment is how the business makes its profits or losses - what are the key profit drivers, where are they located and how does the pattern of profits across the business as a whole (not just in the UK) sit with these key drivers? Where a company appears to carry on key functions, hold key assets or bear key risks then it is reasonable to expect these to generate a sizeable part of the business’s profits - a significant mismatch may be an indication of non-arm’s length pricing.

Although transfer pricing enquiries can produce large amounts of tax they can also be resource intensive. Asking some simple questions before inputting significant amounts of resource is therefore a sensible step:

• Does the case have the scope for transfer pricing risks to be present?
• Is there sufficient resource available to work any risks that may be identified?
• Are there indications that the amount of tax at risk could be significant?

If these questions can be answered positively then it makes sense to proceed with a fuller risk assessment. Conducting a thorough risk assessment will allow any resultant enquiries to be clearly focused, thereby minimising disruption to the business and helping HMRC to settle the enquiries by the appropriate target deadline.

A good transfer pricing risk assessment will be a collaborative effort between the case team and the Transfer Pricing Specialist (TPS), and ideally the business as well, with other specialists becoming involved as appropriate. Although the TPS will have a good understanding of transfer pricing principles, the case team will have more detailed knowledge of the business in question. Combining these two elements should lead to a more thorough and well researched risk assessment and, ultimately, a faster and more effective enquiry.