05 12 2016

Transfer Pricing Behind Jump In UK Tax In Dispute

The amount of tax potentially underpaid by big businesses by shifting profits to other jurisdictions has increased by 60 percent in the last year, to GBP3.8bn (USD4.8bn), according to figures obtained by international law firm Pinsent Masons.

The figure is the "tax under consideration" by HMRC's Large Business Directorate, being an estimate of the maximum potential additional tax liability across all open inquiries but before any investigations have been completed.

Pinsent Mason tax expert Heather Self said that the increase suggested HMRC has opened a significant number of new inquiries over the last twelve months, in particular into multinationals' transfer pricing affairs. She suggested transfer pricing is becoming the single largest risk or source of potential tax inaccuracies for large businesses.

"It seems the Revenue is taking a fresh look at the UK's largest businesses, with a focus on intra-group, cross-border transactions," she said. "This is likely to be a reaction to the increasing focus of the OECD and 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."

"HMRC has been investing in transfer pricing specialists, and this is quite clearly reflected in the figures," she said.

Self said that the 2015 introduction of the diverted profit tax, which aims to ensure multinationals pay appropriate levels of tax in the UK, could be driving the increase in HMRC tax investigations.