13 06 2017

Enforcement Tax Yield From UK's Largest Firms Drops

Investigations by HM Revenue and Customs into the corporate tax affairs of the UK's largest businesses yielded an extra GBP2.6bn (USD3.3bn) in revenue last year, according to figures obtained by international law firm Pinsent Masons.

The figure covers 2,100 of the UK's largest and most complex businesses, whose tax affairs are overseen by HMRC's Large Business Directorate.

According to Pinsent Masons, although the total amount of additional corporation tax collected has fallen since last year, having fallen by 25 percent from GBP3.5bn, the figures highlight that investigations into corporation tax paid by large businesses are still a rich source of extra revenue for HMRC and remain a key priority area.

The firm noted that part of the reason for a drop in revenue could be the reduction in corporate tax rates. In addition, HMRC could now be either moving on from major cases to those that are potentially less lucrative or it could be moving on to more complex cases that take a longer time to investigate.

Heather Self, Partner at Pinsent Masons, said: "The fall in additional revenue could, however, be an indication of a 'lower-risk' approach to tax planning among large corporates over recent years. Intense media scrutiny and high-profile clamp downs by HMRC have pushed aggressive avoidance strategies off the agenda for many large businesses."

She added: "We are seeing HMRC taking a more aggressive stance in relation to commercial transactions which were once seen as routine planning. The issues tend to be less clear cut, which can make them more difficult for HMRC to tackle. The UK Government is keen to be seen to be leading the way in the fight against tax avoidance by multinationals and is implementing proposals made by the OECD sooner than most countries."

The firm reported in November that the "tax under consideration" by HMRC for transfer pricing increased by 60 percent in the last year, to GBP3.8bn. Tax under consideration is an estimate of the maximum potential additional tax liability across all open inquiries but before any investigations have been completed.

Heather Self said: "Transfer pricing disputes are complex and typically take a long time to resolve. However, over the next few years we are likely to see some of the tax currently under consideration in relation to transfer pricing feeding through into the tax collected statistics. The UK Government is keen to be seen to be leading the way in the fight against tax avoidance by multinationals and is implementing proposals made by the OECD sooner than most countries. HMRC and the Treasury are therefore likely to be under pressure to show that they are taking a tough line with big corporates. It appears that HMRC is getting bolder at challenging the amount of profit of multinationals which should be allocated to UK economic activities. This is likely to result in higher corporation tax compliance yields in the future.