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UK: Transfer pricing remains a significant focus for HMRC

UK: Transfer pricing remains a significant focus

Recent HM Revenue & Customs (HMRC) publications confirm transfer pricing remains a major focus of HMRC Large Business enquiries.

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HMRC’s release of its 2019/2020 annual report and its 2019/2020 transfer pricing and diverted profits tax statistics reinforces that HMRC views transfer pricing as the largest priority for the Large Business resources.

“Tax under consideration” relating to transfer pricing and thin capitalisation enquiries by HMRC Large Business were £10.35 billion at 31 March 2020 with another £4.1 billion relating to international enquiries. These figures are significantly up from £5.95 billion and £2.49 billion, respectively, as at 31 March 2019. HMRC’s Medium Sized Business Compliance Directorate is also focusing on this area.

Although the HMRC statistics clarify that the tax-under-consideration figures represent the maximum potential additional tax liability before HMRC conducts a full investigation, the 2019/2020 transfer pricing yield of £1.45 billion (the fourth year in a row when the transfer pricing yield is over £1 billion) may explain why the number of HMRC specialists continues to increase and why HMRC has continued its Profit Diversion Compliance Facility (PDCF).

Careful consideration of options available for managing the perceived scale of risk, with an understanding HMRC perspectives and current activity, may provide useful information and actions for multinational businesses. Options may include:

  • Preparing for enquiries. It is anticipated that documentation and underlying evidence would be looked at by HMRC. Investment upfront could be beneficial for taxpayers—for example, a check on transfer pricing policies and/or re-validation of functional and value chain analyses in light of the focus of the PDCF guidance.
  • PDCF. The associated “nudge letters” have been targeted to a relatively small number of companies. The latest batch of letters (September 2020) provided insights on lessons learned. Further PDCF nudge letters are expected over the coming months.
  • Bilateral or multilateral APAs and MAPs (including when appropriate mandatory binding arbitration). The HMRC 2019/2020 statistics suggest that both programmes continue to function to eliminate double taxation, with yearly variances in figures probably not that significant. While complex bilateral APAs will generally take some time to resolve, the mention of the trilateral solution to enable a number of long-running cases to be settled in the period is encouraging. 


For more information, contact a tax professional with the KPMG member firm in the UK:

Matt Whipp | Matthew.Whipp@kpmg.co.uk

Nick Stevart | Nick.Stevart@kpmg.co.uk  

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