HMRC investigations into high-value companies it suspects of using transfer pricing to avoid tax has fallen by 15% in a year, according to UHY Hacker Young.
The number has slumped from 450 in 2013/14 to 391 last year, as HMRC is witnessing a decrease in the number of companies that use aggressive methods to mitigate their UK tax bills.
Calmpdown ‘appears to be working’
Roy Maugham, tax partner at UHY Hacker Young explained: “HMRC’s clampdown on companies it suspects of avoiding UK tax through manipulation of transfer pricing methods appears to be working.”
“Transfer pricing is an essential tool of tax planning for multinationals but some companies have pushed the boundaries of this and used transfer pricing to actively avoid paying their full UK tax liability.”
“HMRC investigations in recent years have been successful in driving down the number of companies looking to exploit transfer pricing to avoid UK tax.”
Maugham adds that multinationals are also now more concerned about negative publicity over aggressive use of transfer pricing. A number of US companies, such as Starbucks, have been subject to protest campaigns by single interest groups over their use of transfer pricing.
In recent years a number of high-profile corporates have come under fire from the media and HMRC as a result of their transfer pricing practices. With the press prone to ‘naming and shaming’, companies are increasingly concerned about the effect negative public opinion can have on their reputation and, ultimately, revenues.
High profile tax avoidance cases including Google’s recent £130 million tax avoidance settlement with HMRC appears to have deterred other companies to not follow suit.
UHY Hacker Young adds that UK corporation tax has fallen to 20%, leaving companies with a more manageable amount to pay and may have led to the fall in the number of companies seeking to avoid UK tax.
“Due to the increasingly favourable UK corporation tax rate, it may be the case that some companies are less driven to actively look for ways to avoid paying their tax,” continued Maugham.
In February, it was revealed that HMRC’s High Net Worth Unit has seen a considerable increase in its ROI over the 12 monthsm, with the investigation group yielding £29 for every £1 invested.
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