CH72640 - Penalties for Failure to Notify: Calculating the penalty: Potential Lost Revenue: Potential overpayments by other persons
General rule
When calculating the potential lost revenue (PLR) due to a person鈥檚 failure to notify, no account should be taken of any resulting overpayment by another person.
Example
Sven failed to register for VAT. As a consequence he did not issue a VAT invoice with an amount of VAT on it when he made a sale to Benny, who was registered for VAT. If Sven had registered for VAT he might well have issued a VAT invoice to Benny. Had he done so, Benny might have been able to set this tax against his liability for the output tax he charged his own customers.
The PLR due to Sven鈥檚 failure to register is not reduced by any additional amount that Benny might have paid to us as a result of Sven鈥檚 failure.
Exception to the rule
When calculating the PLR due to a person鈥檚 (P鈥檚) failure to notify, see CH71220, you can take into account tax overpaid by another person (Q) when
- Q鈥檚 tax liability may (under the law) be adjusted by reference to P鈥檚 liability, and
- any increase or decrease in P鈥檚 liability results in a corresponding decrease or increase in Q鈥檚 liability.
You adjust P鈥檚 PLR by the amount of tax Q has overpaid as a result of P鈥檚 failure to notify.
Example
Anyanka Ltd, UK taxpayer, is required to make a transfer pricing adjustment to its corporation tax profits in respect of transactions with another UK taxpayer in its group, Gloriana Ltd.
If Anyanka Ltd makes the transfer pricing adjustment, Gloriana Ltd is able to claim a compensating adjustment.
If Anyanka Ltd fails to notify its liability to corporation tax, Gloriana Ltd is unable to claim a compensating adjustment. Anyanka Ltd鈥檚 PLR from its failure to notify is reduced by the additional amount of tax that Gloriana Ltd has paid as a result of the failure.