Disputed 'transfer pricing' tax up 60% to £3.8bn

HMRC expects that £3.8bn is underpaid through large business’ “transfer pricing”, a 60% increase compared to 2015.

The £3.8bn is what HMRC labels “tax under consideration”, which estimates the maximum potential additional tax liability, this is before full investigations have been completed.

A HMRC spokesperson said: “HMRC is cracking down on all large businesses not paying their way.”

This amount is up from the £2.4bn last year, meaning that transfer pricing is the “largest risk of potential inaccuracy” regarding the tax affairs of large businesses, said Pinsent Masons.

Heather Self, partner at Pinsent Masons said: “It seems the Revenue is taking a fresh look at the UK’s largest businesses, with a focus on intra-group, cross-border transactions. This is likely to be a reaction to the increasing focus of the OECD and the 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.”

The figure relates to enquiries by HMRC’s large business directorate, which scrutinises the tax affairs of the UK’s 2000 largest and most complex businesses. Pinsent Masons claims that HMRC must have opened a “significant number” of new enquiries in the last 12 months.

Earlier this year the government deliberated a secondary adjustment to transfer pricing rules with a consultation document.

The rise may also have been caused by the impact of Diverted Profits Tax, introduced in April 2015, on the arrangements with foreign companies and transactions lacking in economic substance.