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Danny McCance 13 Sep 2017 04:33pm

HMRC raises £281m from diverted profits tax

The Revenue massively boosted its take from diverted profits tax (DPT) this year, but had difficulty with internal targets on resolving disputes

HRMC added a further £250m on last year’s figure and exceeded this year's estimate of £275m, according to transfer pricing and diverted profits tax statistic, to 2016/17 released today.

The tax is designed to dissuade companies that aim to minimise their tax liabilities through the use of contrived arrangements. Many of these cases end up as transfer pricing disputes.

In June, reports suggested that the amount potentially under dispute in relation to the UK's 2,000 largest businesses reached £3.8bn in 2016.

There is concern over efficiency at which HMRC is dealing with disputes, the firm Pinsent Masons suggested.

Heather Self, partner at the law firm, said, “Transfer pricing disputes are taking HMRC nearly two-and-a-half years to settle – a year longer than its internal target. This is creating a serious backlog.

“Businesses are being bogged down for up to five years in some cases, as HMRC’s internal targets count from the time an enquiry is opened, which is typically up to two years after the transactions.”

The firm highlighted advanced pricing agreements (APAs) – written agreements on the appropriate transfer pricing, time periods and certain transactions between HMRC and a business – as the key tool in transfer pricing.

“There is a build-up of APAs waiting to be approved stretching back to 2013 and it’s already taking almost 3 years to agree them. Certainty requires timeliness, otherwise its value diminishes,” Self continued.

"Again, it is disappointing that HMRC is falling behind on approving these agreements.”

An HMRC spokesperson said, "The diverted profits tax was introduced in the 2015 Budget to encourage large companies that try to minimise their tax liabilities using contrived arrangements to change their behaviour, or face paying tax at a higher rate. So far, it has yielded more than was forecast in the 2015 Budget.

“HMRC’s application of the transfer pricing and DPT legislation yielded £6.2 billion over the last five years.”

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