‘Google tax’ nets HMRC £281m

Diverted profits tax (DPT) revenue collected by HMRC in 2016-17 totalled £281m, leaping from £31m collected in the previous year, according to data released by HMRC.

The £281m figure includes £138m raised from the issuance of DPT charging notices in addition to behavioural changes resulting in additional corporation tax following interventions from HMRC or the amendment of business structures without HMRC intervention.

Introduced in April 2015, the DPT – widely known as the “Google tax” – aims to discourage the use of aggressive tax planning structures used by multinational companies to divert profits from the UK.

However, law firm Pinsent Masons said that many DPT disputes become transfer pricing disputes, and HMRC is spending an increasing amount of time settling the cases.

“Transfer pricing disputes are taking HMRC nearly two-and-a-half years to settle – a year longer than its internal target. This is creating a serious backlog,” said Heather Self, partner at the firm.

“Businesses are being bogged down for up to five years in some cases, as HMRC’s internal targets count from the time an enquiry is opened, which is typically up to two years after the transactions.”

Pinsent Masons also expressed concern that HMRC is falling behind on approving Advanced Pricing Agreements (APAs), under which businesses and HMRC agree on the appropriate transfer pricing method to be applied to transactions.

Self commented: “APAs give certainty which is much valued by businesses and also help HMRC use their resources efficiently. Again, it is disappointing that HMRC is falling behind on approving these agreements.

“There is a build-up of APAs waiting to be approved stretching back to 2013 and it’s already taking almost 3 years to agree them. Certainty requires timeliness, otherwise its value diminishes.”

Self said that she expected the number of DPT charging notices issued by HMRC to increase next year, as the tax applies to profits arising from 1 April 2015, and the deadline for notices for the period ending 31 December 2015 is 31 December 2017.

“We think a lot of notices will be issued in the second half of this year,” Self said.

The £281m collected by HMRC in 2016-17 exceeds the authority’s original estimates of £275m.

In August this year, Amazon announced that it had halved its corporation tax bill in the UK to £7.4m in 2016, a reduction from £15.8m in 2015.