The recent case of Lifeplus Europe Ltd v HMRC [2026] UKFTT 00797 (TC) is relevant to taxpayers facing Schedule 36 information notices in the context of a Transfer Pricing Dispute. The case shows HMRC’s assertiveness in this area and provides an example of a taxpayer successfully resisting HMRC’s demands. It is a reminder of the limitations of HMRC's Schedule 36 powers:
• HMRC were unable to show that the parent company accounts requested were “reasonably required”;
• It was also found that the documents were not within the taxpayer's “possession or power” to obtain.
Our previous insight article provides an introduction to Schedule 36 in the Transfer Pricing Disputes context and can be found here: Transfer Pricing Disputes & Investigations: HMRC’s Schedule 36 powers and associated penalties | JHAB LLP. As explained in that article, Schedule 36, among other things, allows HMRC to compel production of information or documents that are “reasonably required” to check a taxpayer's tax position. Schedule 36 also includes a penalty regime and specific Transfer Pricing amendments were introduced in 2023.
Background
Lifeplus Europe Limited (“the Appellant”) is a UK subsidiary of a US parent. HMRC opened an enquiry into the Appellant’s tax position, having identified a perceived Transfer Pricing risk for certain Accounting Periods (there had been significant growth in the Appellant’s turnover, yet the net profit margin in its company accounts had reduced significantly). This reduction in profits had coincided with the adoption of a particular Transfer Pricing policy. HMRC issued a Schedule 36 Information Notice to the Appellant, requesting, in respect of several Accounting Periods, all of the US parent company’s group consolidated financial statements (“Item 1”); and all of that parent company’s entity level financial statements (“Item 2”).
Following an HMRC review, the Appellant appealed to the Tribunal. The issues were: (1) Whether the documents requested were “reasonably required” by HMRC to check the Appellant’s tax; and (2) If so, whether the documents were in the “possession or power” of the Appellant. These issues required the Tribunal to consider relevant Transfer Pricing principles applied to cross-border transactions.
The parties’ arguments
HMRC argued that in respect of ‘Item 1’, the consolidated financial statements would: (1) evidence the group’s overall turnover, costs and profit; (2) enable HMRC to assess the proportion of the Appellant’s contribution to group profits/losses; and (3) substantiate the accuracy of the evidence that the Appellant had provided to HMRC during the enquiry.
In respect of ‘Item 2’, HMRC argued that the entity level financial statements would: (1) evidence the figures put forward as part of the Appellant’s proposed adjustment to HMRC’s CUP analysis; (2) assist with verifying whether the parent company, as an entity, was making a loss in 2013; and (3) enable HMRC to compare the Appellant’s turnover and costs/profits with those of the parent company, to support the correctness of the CUP analysis.
In response, the Appellant argued that: (1) The consolidated group accounts and the parent company accounts were not ‘reasonably required’ for the purpose of checking the Appellant’s tax position, because there was no ‘rational connection’ between those accounts and the issue in the enquiry; and (2) in any event, those accounts were not in the Appellant’s ‘possession’ or ‘power’ because the Appellant did not have any enforceable legal right, ‘general consent’, or ‘de facto’ right to access them.
The Tribunal’s Decision
The Tribunal decided in favour of the Appellant. The Tribunal considered that the approach adopted by HMRC during the enquiry, together with the relevant Transfer Pricing methodologies and processes, is the lens through which any ‘rational connection’ between the tax dispute and the documents requested in the Information Notice is to be viewed.
Having considered the information, the Tribunal held that the documents requested in the Information Notice were not ‘reasonably required’. HMRC had, among other things, failed to give an objectively reasonable explanation for why they should be permitted to have the contents of the accounts. OECD Guidelines para 3.22 states that once a one-sided method is chosen with the domestic taxpayer as tested party (as in the instant case), the tax administration "generally has no reason to further ask for financial data of the foreign associated enterprise".
For completeness, regarding ‘possession or power’, the Tribunal was satisfied that the Appellant had made serious attempts to obtain the documents requested—upon receipt of the Information Notice, the Appellant’s representatives asked the parent company’s Chief Financial Officer to obtain the documents, but the parent company declined (stating that the owners of the privately-held company were entitled to their privacy and confidentiality under US law, and citing the sufficiency of the annual transfer pricing studies and the volume of information already provided). Some of the Appellant’s officers were also officers of the parent company, however the Tribunal decided, amongst other things, that the Appellant did not have either a right or power to access the documents without the parent company’s consent and that complying with HMRC’s requests would put the Directors in breach of their statutory duties. As part of its reasoning, the Tribunal considered disclosure case law from the High Court and Court of Appeal and the CPR 31.8 line of authorities, noting that ‘control’ and ‘power’ have the same meaning.
Implications and possible next steps
The end of the decision includes the standard right to apply for permission to appeal, however the Tribunal’s decision cannot in fact be appealed as it is considered ‘final’ (by virtue of Paragraph 32(5) of Schedule 36).
In terms of the wider matter, HMRC may now decide (having failed to obtain the documents sought), to simply issue closure notices amending the relevant tax returns based on the information they currently hold. The Appellant would then be able to appeal, and the burden would be on them to dislodge the amendments.
As the enquiries remain open, there are no time limits for HMRC to close the enquiries and amend the returns, however the Appellant may apply to the Tribunal for a direction that HMRC issue a closure notice unless there are reasonable grounds not to (Paragraph 33, Schedule 18 to Finance Act 1998). In light of HMRC’s delays and failures so far, the Tribunal may be sympathetic to such an application (enquiries have been open since 2016 across ten Accounting Periods and almost 30,000 emails have been provided to HMRC).
HMRC may also need to consider the UK/US treaty dimension, should they seek to impose a Transfer Pricing adjustment. There may also be double-taxation and mutual agreement procedure / corresponding adjustment considerations.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
