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Chapter INTM485050

Document Cited in Related
Vincent
Published date09 April 2016
Record NumberINTM485050
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
Role of bargaining power

Although the term ‘bargaining power’ is not used in the OECD Transfer Pricing Guidelines the concept is implicit in references to relative bargaining and competitive positions, for example at paragraphs 1.55 and 3.43.

The concept of relative bargaining power between connected parties was a feature of DSG Retail Ltd and others v HMRC (TC00001), heard by the UK Special Commissioners (now the First-tier Tax Tribunal) in 2008.

The Commissioners heard expert evidence from an economist appearing for HMRC who explained that the extent to which value in excess of a ‘normal’ rate of return is created is limited by competition. Where competition exists it will eventually force higher returns (‘economic profits’) down to a normal level. If a lack of competition allows economic profits to arise then these are distributed between the parties according to the ability of each party to protect itself from normal competitive forces.

DSG Retail Ltd (DSG) had that ability. That was because DSG had the advantage of selling warranties at the point of sale as the largest retailer of domestic electrical goods in the UK. In contrast the insurance and service...

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