SoP1(2011) describes the UK’s practices for reducing or preventing double taxation and supersedes Tax Bulletins 25 and 31 which previously provided guidance in this area.
It considers the use of mutual agreement procedure (MAP) under the relevant UK Double Taxation Convention and/or the EU Arbitration Convention and also describes the UK’s approach to the use of arbitration where MAP is unsuccessful. It has particular relevance to transfer pricing and multinational enterprises.
SoP2(2010) deals with Advance Pricing Agreements – written agreements between a business and the Commissioners of HM Revenue and Customs (HMRC) which determine a method for resolving transfer pricing issues in advance of a return being made.
When the terms of the agreement are complied with, it provides assurance to the business that the treatment of those transfer pricing issues will be accepted by HMRC for the period covered by the agreement.
Although the APA legislation is also used as the basis for Advance Thin Capitalisation Agreements (ATCAs), HMRC has published a separate document, Statement of Practice 4 (2007), to provide detailed guidance about its practice in reaching advance agreements over thin capitalisation issues. These cases have their own distinctive features and are therefore negotiated under an entirely separate process.
Therefore SoP2 has no impact on the existing guidance on ATCAs in Statement of Practice 4 (2007).