Danny McCance 23 Apr 2019 01:34pm

HMRC estimates US companies could owe £4.6bn

US-based companies could be faced with an additional £4.6bn in UK tax bills for the year ending 31 March 2018

This is an increase of 35% on the £3.4bn estimated for the previous year, with HMRC cracking down on transfer pricing.

The most recent figures, obtained after a freedom of information request by law firm Pinsent Masons, found that the tax under consideration (TUC) for US-based companies has more than doubled since 2013/14.

TUC, the maximum potential additional tax liability across all HMRC inquiries before a full investigation, for 2017/18 totalled £27.8bn – 17% of which could be from US-based companies.

The total TUC has increased by 14% from the year ended 31 March 2017.

A spokesperson from HMRC said that TUC “is not tax owed or unpaid, it’s an estimate of what might be at stake if we didn’t investigate,” and that the Revenue is “actively investigating around half of large businesses at any one time”.

According to Pinsent Masons, HMRC is investigating large US-based multinationals in regards to profits being transferred overseas.

In 2015 HMRC introduced its Diverted Profits Tax (DPT), aimed at deterring large multinationals from diverting profits away from the UK to avoid paying corporation tax. The DPT tax rate is 25% compared to the current 19% corporation tax rate.

In recent years, Amazon, Starbucks, Google, eBay and most recently Netflix have come under scrutiny over accusations of moving profits to lower tax jurisdictions to reduce their tax liability.

Pinsent Masons explained that transfer pricing relates to the pricing of a transaction when two companies that are part of the same multinational trade with each other. As these companies operate in different tax jurisdictions, the allocating of the profit is often a difficult process.

Transfer pricing accounted for 22% of the total TUC for 2017/18 – the highest proportion of all the “high risk areas” identified by HMRC, another example of which included output tax under-declared, in which VAT charged on sales is under-declared to HMRC by a businesses.

Jason Collins, partner at Pinsent Masons, said that with HMRC under “enormous pressure” to generate greater tax revenue, both foreign and domestic businesses are under more scrutiny.

“Often the large amount HMRC initially believes has been underpaid boils down to basic misunderstandings with businesses and past experience is that HMRC will only collect half the amount it initially sets out,” he added.

“The wide application of profit diversion initiatives shows that businesses across all sectors would be wise to review their cross-border arrangements,” Collins said.

"HMRC expects all businesses operating cross-border to have revisited their transfer pricing policies to check they accord with what is actually happening in practice."

An HMRC spokesperson said that the Revenue “enforces the UK’s tax rules impartially, irrespective of the size or structure of the business,” adding that the largest businesses come under “an exceptional level of scrutiny”.

Collins also noted that as well as multinationals, all large businesses are “under growing scrutiny” as TUC last year was at a “record high”.

Large UK businesses were thought to have underpaid £5.8bn between 2017 and 2018 through transfer pricing, however this figure has recently been revised up to £6.2bn.

In February, multinational mining corporation Glencore revealed that HMRC was pursuing it for £522m over transfer pricing.