Transfer pricing issues in Temple Finance

Temple Finance (TC04840) is a rare example of a case concerning HMRC’s powers to issue an open market value direction on transactions between related parties. HMRC will certainly be disappointed with the result.

The problem for HMRC appears to arise from its conviction that the structure adopted by the taxpayer group was designed solely to reduce its VAT liabilities. However, lacking the courage of its convictions, HMRC did not choose to allege ‘abuse’.

The case involved two separately VAT registered companies, one selling retail goods and the other selling retail goods under hire purchase. The first company made fully taxable supplies, but the second company was partly exempt. The first incurred overhead costs, and recharged a share to the second. Some 98% of the first company’s goods supplies were to the second company, which sold them under hire purchase.