Multinational tax under consideration hits record high

Multinational tax under consideration hits record high

Professionals from the Chartered Institute of Taxation and Fitzgerald & Law weigh in on the impact of tax under consideration and the diverted profits tax

Multinational tax under consideration hits record high

HMRC’s tax under consideration (TUC) for UK multinationals hit £20bn in 2019, rising by 53 percent since 2014.

The data, obtained via a Freedom of Information request by accountancy firm Fitzgerald & Law and seen by Accountancy Age, shows that UK-based multinationals are on the hook for the largest amount of TUC.

Comparing the UK to several other countries, the UK continually had the highest amounts of TUC, with the United States and Switzerland taking second and third place, respectively. Melissa Christopher, partner at Fitzgerald & Law, explained that this is partly due to natural progressions, but is also the effect of HMRC’s measures throughout the last decade.

“I suppose there is a natural expectation that UK tax figures or UK potential tax figures will be a big focus on UK-headed groups, but I do think the Treasury approach to tax investigations has changed,” Christopher says.

“20 years ago when I started, it was almost a game. The legislation would come out and the tax professionals would look at it, and they would absolutely stick to the letter of the law. But, if there was a creative way around it, they wouldn’t hesitate to do that.”

“When the changes have gone through more recently, it’s a lot more of, ‘well, this is what we intended the law to say, so we’re going to backdate and change it, and that’s what it needs to say going forward’ – which feels a bit like moving the goalposts.”

The diverted profits tax (DPT), introduced in 2014, aimed to keep profits within the UK by rewarding companies’ good behaviour. However, this also provided HMRC with more authority to challenge businesses about their liabilities.

John Cullinane, tax policy director for the Chartered Institute of Taxation, says that tax was designed to act as a soft backstop for corporation tax, and did receive pushback from multinationals when it was introduced. Looking at the new data in this context, Cullinane says that he’s not surprised to see 2019’s numbers.

“These figures almost confirm that impression that we could have had from talking to multinationals and just from seeing what happened with the diverted profits,” Cullinane says. “It’s really moved the UK away from being a very, very friendly compliance regime for multinationals, to being a somewhat tougher one.”

Other countries do have much stricter tax regimes for multinationals, Cullinane adds, but there is an added difficulty of multinationals having to pay HMRC, even if the company is disputing the amount – placing a great deal of pressure on multinationals within the UK.

In response to the FOI data, an HMRC spokesperson said: “HMRC’s role is to collect the right amount of tax due under UK law and we carefully scrutinise businesses, including multinationals, to make sure they aren’t artificially diverting profits away from the UK.

“HMRC actively investigates around half of the UK’s largest businesses at any one time.”

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