Top firms open new front in war for specialist tax talent
Revenue’s tough stance on transfer pricing sparks lucrative new practice area for City leaders
Vimal Tilakapala
A battle for talent is developing among the UK’s top firms as they strive to come up with new revenue streams in the wake of the economic meltdown.
Firms including Allen & Overy (A&O), CMS Cameron McKenna and Linklaters are actively seeking non-lawyer transfer pricing specialists to augment the services provided by their tax departments.
The trend reflects the reduction in traditional top-level tax advice, such as on cross-border M&A and complex financings.
It also reflects the leading firms’ desire to compete with the big four accountants for high-margin tax and economics advice.
“We need to adapt to the new environment and are considering ways to expand our offering,” said Vimal Tilakapala, who became co-head of A&O’s UK tax group at the start of September.
Freshfields Bruckhaus Deringer stole a march in June when it became the first major UK firm to bring in a transfer pricing specialist, hiring former Grant Thornton partner Danny Beeton as a consultant.
London-based Freshfields tax partner Murray Clayson confirmed the plan was aimed partly at competing with the big four by offering tax and economics advice along with the legal aspects of “intangibles”, such as IP, patents and copyright.
“We want to offer the complete service and go head-to-head with our competitors for any transfer pricing work,” said Clayson.
Transfer pricing is the pricing of assets transferred internally within an organisation. In a multinational business the price of those assets can be set by the company rather than the open market, raising a potential tax avoidance issue.
Under what is known as the ‘arm’s-length principle’ the price charged should be the same as if it were on the open market, or at ‘arm’s length’ from the company.
“Working out what is or isn’t arm’s length is a major issue,” said Tilakapala. “Until now it’s almost exclusively been handled by accountants or specialist operations. Lawyers have tended to bring in specialists to advise or to refer to others.
“We’re now questioning this model and have noted that Freshfields, for example, has recently brought some of this expertise in-house.”
In addition, many firms are trying to strengthen their contentious tax capabilities in response to a more aggressive line taken in recent months by HM Revenue & Customs (HMRC).
“We see our tax disputes practice as a growth area, as HMRC has become increasingly litigious and its policy seems to be to litigate where it may previously have chosen to settle,” said Tilakapala.
HMRC has signalled its intention to take a tougher line on companies that avoid tax via transfer pricing. It has also indicated an increased willingness to litigate where necessary.
Readers' comments (8)
Anonymous | 14-Sep-2009 11:37 am
This sounds very good but the strategy is flawed as it requires a far more extensive network than any law firm possesses and the people they have hired or are talking to are not names in the market - rather the reverse - I am sure they will do some work but it is far from being a big growth area and the idea that there will be a lot of litigation is fanciful in the extreme
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Anonymous | 14-Sep-2009 3:41 pm
Err ... US firms have been doing this for years. Why is this now making headlines?
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Anonymous | 15-Sep-2009 6:45 am
Baker & McKenzie has had this strategy in place for a long time. Because this area is in direct competition with the Big 4 Accounting Firms, it will take a long time for the strategy to pay off.
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Anonymous | 15-Sep-2009 7:35 am
spot on - the US firms do litigation and outsource the analysis to economists - not I think a european model
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Anonymous | 15-Sep-2009 11:26 am
$3.4bn tax settlement by GSK to IRS and recent £52m adjustment in DSG Retail v HMRC have made the headlines, both specifically relating to transfer pricing, and would indicate a potential growth market in terms of materiality of tax charges. On the back of successful cash collection exercises like this the bullish attitude of tax authorities will inevitably increase litigation as opposed to the more usual arbitration route. In both cases the legal documentation and contractual aspects of the transfer pricing were identified as fatal flaws, a technical element the traditional accounting firms are often unable to service appropriately. Expansion of high-level tax capabilities in law firms seems a pretty practical response given the current market
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Anonymous | 15-Sep-2009 6:13 pm
Also tax authorities do not have the resources (physically or financially) to bring more than 3-4 cases of litigation per year....
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Anonymous | 16-Sep-2009 12:18 pm
Presumably an interesting indicator is that HMRC have recently instructed Lovells for a pilot litigation contract, anticipating a lot more tax cases
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Anonymous | 17-Sep-2009 3:25 pm
There have been a number of the "magic circle" that have looked at expanding their tax offering to take on the Big 4 firms in a number of areas, Transfer Pricing being the main one.
The interest in expanding their reach generally rises when the mainstay of their work load, all things "transactional", is thinner on the ground. As we eventually move onto an upward curve it will most likely be back to business as usual for the tax departments of law firms - it is not that tax lawyers are not capable of carrying out the work, it is more that their internal clients/work providers (corporate/PE/Funds/Real Estate teams) want to have the tax department at their beck and call, rather then heading off and doing their own work
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