The data show HMRC continue to prioritise these areas to ensure that multinationals pay the right amount of tax in the UK.
HMRC have published the most recent transfer pricing and Diverted Profits Tax (DPT) statistics, which provide useful insight into their compliance and dispute resolution work in this critical area of large business taxation. Overall these show the continuing priority HMRC are giving to these issues, having collected additional tax of £6.5 billion from 2012/13 to 2017/18 and deployed 365 dedicated full time staff. The £1.682 billion yield from transfer pricing is in line with the previous year, although the average age of open enquiries has nudged up to over 30 months. The DPT figures are perhaps the most interesting disclosure as these relate to the first complete year of operating this new regime and the actions taken by HMRC in relation to 2015 accounting periods. Yield of £388 million and the issue of 190 charging notices to 22 businesses are indicative of how widely DPT is being applied in practice.
There has been much speculation around the extent to which the DPT regime is being applied and these statistics give a first significant indication of what is happening on the ground. The headline numbers of 220 DPT notifications being received in 2017/18 and of 190 charging notices being issued needs to be considered in the context of these involving only 22 multinational groups. This suggests that a fairly targeted approach may have been adopted in practice despite the wide scope of the DPT rules.
Whilst there is no data disclosing how many transfer pricing enquiries the department is undertaking, yield exceeding £1.6 billion for the second year running and the deployment of 365 full time equivalent dedicated staff show very clearly how this remains a top priority for HMRC’s Large Business group. The supporting narrative around enquiries comments on the collaborative work with other tax authorities in this area and it is also notable that this year Country-by-Country reporting gets a specific mention in the context of supporting HMRC’s risk assessment processes.
The statistics also detail the department’s work in reaching agreements on how profits should be taxed with the UK’s treaty partners through the Mutual Agreement Procedure (MAP) and Advance Pricing Agreements (APAs).
The extent to which the MAP process is being used to resolve double tax disputes and the changes which are taking place to improve the process are evident from the significant increases in both cases settled, which have doubled from 36 to 71, and admitted during the year. The OECD’s Peer Review of UK practice was largely positive and improvements in guidance and practice appear to be paying dividends to make this an increasingly attractive option for business.
The APA numbers show a marked decline in applications made during the year, which have halved from 32 to only 16. In contrast the number of cases resolved has increased significantly from 19 to 27.
The fall in applications is a concern as it may reflect a decreased appetite from business to engage in the programme. Certainly it has been taking longer to conclude APAs – average lapse times have increased to over three years, and the interaction with DPT alongside more rigorous enquiries into APA applications may have also had an impact. However HMRC are clearly still committed to their bilateral APA programme and it will be interesting to see if the 2017/18 numbers are a one-off or part of a longer-term trend.
Overall the publication of the data is very welcome in terms of the transparency it gives to this important area of large business compliance and the clear message it carries of its continuing significance to both HMRC and business.
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