29 Nov 2016 09:13am

HMRC targets £3.8bn underpaid tax through transfer pricing

HMRC believes that UK multinationals have underpaid £3.8bn tax through the use of intra-group, cross-border transfer pricing deals – a 60% increase on its estimate for 2015
Caption: Says multinationals use intra-group cross border transfer pricing to reduce tax

The amount relates to ongoing enquiries by HMRC’s large business directorate – which is responsible for monitoring the tax affairs of the UK’s 2,000 largest and most complex businesses – and is an estimate of the maximum potential additional tax liability across all enquiries before full investigations have been completed.

According to lawyers Pinsent Masons, the huge uptick in the amount, from £2.4bn last year, indicates that HMRC has initiated a “significant number” of new enquiries this year.

Tax partner Heather Self commented, “It seems the Revenue is taking a fresh look at the UK’s largest businesses, with a focus on intra-group, cross-border transactions.

“This is likely to be a reaction to the increasing focus of the OECD and the EU on international taxation, and it suggests that HMRC is getting bolder at challenging the amount of profit which should be allocated to UK economic activities.”

The firm also points out that HMRC’s recent recruitment drive to bring transfer pricing specialists on to the team is obviously paying dividends – something that is “quite clearly reflected in the figures”.

Self adds that an additional factor may be the diverted profits tax which came into operation in April last year.

This new tax targeted “arrangements by which foreign companies exploit the permanent establishment rules”, and clamped down on companies “creating tax advantages by using transactions or entities that lack economic substance”.

Self said that it was too early to see diverted profits tax enquiries being launched; however, what could be going on, she suggested, was a move by HMRC to initiate a raft of transfer pricing challenges for earlier years “with a view to extending them in diverted profits tax later on”.

Julia Irvine


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