FTT limits HMRC’s Schedule 36 powers in transfer pricing enquiry

The First-tier Tribunal (FTT) decision in Lifeplus Europe Ltd v HMRC [2026] UKFTT 797 (TC) provides a useful reminder of the statutory limits on HMRC’s information-gathering powers under Schedule 36 to the Finance Act 2008 (Sch 36), particularly in the context of transfer pricing (TP) enquiries.

The case arose in a longstanding TP enquiry into a UK subsidiary with a US parent company, where HMRC issued an information notice under Sch 36 requiring the UK subsidiary to produce its US parent company’s consolidated and entity-level financial statements.

Sch 36 gives HMRC the power to request from a UK taxpayer documents which are “reasonably required” to check the UK tax position and in the “possession or power” of that taxpayer. The FTT allowed the UK’s subsidiary’s appeal, concluding that HMRC had not established a “rational connection” between the requested documents and the tax issue under enquiry or that they were in any event within the UK subsidiary’s “power” (it being accepted the UK subsidiary did not already have a copy).

This decision is a reminder that HMRC cannot say "just because I have asked" and should be put to task on what specific tax question the requested documents address. It is also of particular interest to multinational groups facing TP enquiries, as it illustrates the limits on HMRC’s ability to require a UK taxpayer to produce documents held by an overseas parent or other group company.  However, caution should always be exercised, as whether the document is "reasonably required" to check the UK tax position or under the "power" of the UK company is a question of fact.

 

Background

Lifeplus Europe Ltd (LPE) is a UK distributor within a multinational group, purchasing products from its US parent, Eurark LLC, and selling them across Europe. Following a transfer pricing analysis performed by its external advisor, LPE implemented a transfer pricing policy in 2014 applying the Transactional Net Margin Method (TNMM), reflecting its characterisation as a routine distributor.

HMRC opened enquiries into LPE’s tax returns across multiple periods. The core dispute was around the appropriate TP methodology.  Driven by concerns over a decline in LPE’s net profit margins following the implementation of the TP policy, HMRC challenged the TNMM method applied and argued that a method based on internal comparables (the Comparable Uncontrolled Price (CUP) method) should apply.

Over several years, through various information requests, a site visit and functional interviews, HMRC gathered extensive information, including transfer pricing reports, detailed functional and supply chain evidence, and large volumes of internal emails.

Despite this, HMRC eventually issued a Sch 36 notice to LPE in October 2023 requesting its US parent company’s consolidated group accounts and entity-level accounts.

 

The FTT Decision

The FTT concluded that the requested documents were not “reasonably required” to check the taxpayer’s position:

• The FTT found that HMRC had not explained the “rational connection” between the TP methodology dispute and the parent company accounts, in particular why the contents of those accounts were relevant to determining whether TNMM or a CUP-type approach was appropriate.
• Significant weight was placed on the volume of material already supplied during a multi-year enquiry. Against that background, HMRC did not explain why the information sought was not already contained in that material.
• The FTT relied on the OECD Guidelines, noting that where a one-sided method is applied with the domestic entity as the tested party, there is generally no need to obtain financial data of the counterparty. The parent accounts were therefore not required to assess the TP methodology.
• The FTT found that the parent company’s financial statements would not provide further detail on the functional analysis of the entities, nor would they assist HMRC in understanding the functional profile of the businesses.
• HMRC had not relied on those accounts when forming or advancing its proposed methodology. Notably, HMRC’s request for the parent company accounts via an exchange of information request to the IRS was also rejected by the IRS on the basis that the financial statements of the parent company comprise information of foreign subsidiaries not relevant to HMRC’s investigation, and that LPE’s role is already addressed in the transfer pricing reports.

The FTT also held that the documents were not within LPE’s power:

• LPE had no enforceable right to access the US parent company’s financial statements and there was no standing or continuing practical arrangement between LPE and the US parent allowing LPE access to those accounts.
• Whilst LPE’s directors and officers also serve as senior executives of the US Parent, directors cannot be required to exercise influence derived from dual group roles where doing so could cause them to breach their duties to exercise independent judgment and avoid conflicts of interest.

 

Implications for taxpayers

Several practical points stand out for taxpayers facing HMRC information notices, particularly in long-running TP enquiries:

• Challenge overbroad requests: the FTT confirmed that Sch 36 notices must be targeted at identified tax issues, not used for “fishing expeditions”. HMRC must demonstrate a “rational connection” between the documents sought and the specific tax issue under enquiry. Requests for material that is merely informative, contextual, or tangential to the core dispute will not meet the statutory threshold. In practice, taxpayers should scrutinise each request and ask HMRC to explain the specific statutory question within the enquiry that the request goes to, and push back where the link is unclear.
• Keep a clear record of cooperation: the volume of information LPE had already provided weighed heavily in the FTT’s analysis: HMRC could not explain why the parent accounts were needed on top of the transfer pricing reports, functional analyses and other material already on file. Keeping a detailed log of disclosures made during an enquiry makes it harder for HMRC to justify further, wider-ranging requests.
• Lean on the OECD Guidelines: the FTT placed significant weight on the OECD Guidelines (at para 3.22), the reference to which is of course incorporated into UK law, in particular the principle that once a one-sided transfer pricing method (such as the TNMM) is properly selected and the tested party is the domestic taxpayer, the tax administration “generally has no reason to further ask for financial data of the foreign associated enterprise”. This is a helpful argument where the relevant transaction and tested-party analysis support a one-sided method. That said, paragraph 3.22 expressly preserves reliance on information available through country-by-country and master file reporting, so this is not an absolute bar on HMRC using group-level data in such circumstances.
• Understand the limits of “power”: for multinational groups, the FTT’s analysis of "power" is particularly significant. The decision confirms that group relationships, shared directors or overlapping management do not automatically place a parent company’s documents within the subsidiary’s control. “Power” requires a presently enforceable legal right or an established, standing practical arrangement granting access, not merely an expectation that a related entity would comply if asked. Nor can directors be compelled to obtain documents from entities outside the scope of the enquiry where doing so could place them in breach of their duties of independent judgment and to avoid conflicts of interest. Multinational groups should, therefore, be mindful of how they structure intra-group information flows, and should make clear where financial data is provided for a specific, limited purpose (such as supporting a settlement proposal) without creating any wider general consent or standing access arrangement.

The Lifeplus decision applies case law which has developed over a number of years – and turns on its own facts, so it should not be read as a blanket shield against Sch 36 requests. The outcome was materially influenced by the length of the enquiry (nearly a decade), the volume of information already provided, and the FTT’s view that HMRC had not followed the OECD process for selecting and challenging a methodology. Where an enquiry is at an earlier stage, or the taxpayer has been less forthcoming, HMRC may be on stronger ground. Much is made by HMRC about the benefits of collaborative working in enquiries. That does not mean that HMRC’s power to ask questions is unbounded – and this decision is a reminder that taxpayers – particularly those who have engaged cooperatively and in good faith – are entitled to hold HMRC to legal requirements as well.