Cross-border tax probes are set to shoot up after AstraZeneca decided to
settle its transfer pricing issues with HM Revenue & Customs.
The pharmaceutical giant shelled out £505m to reach a compromise with the
taxman. Tax experts believe this will trigger more probes by HMRC.
Transfer pricing, or the way companies ferry assets such as intellectual
property and services between tax jurisdictions and set a price for these
services, is one of HMRC’s biggest bugbears with business.
This is because it feels if the price for the services is not set at “arms
length”, they are underpriced when they travel to low-tax jurisdictions –
disadvantaging the Exchequer.
The taxman has been busy in the past month closing various loopholes – and
coming out on top in cases such as against AstraZeneca is only going to
strengthen HMRC’s resolve.
“It’s all about how inspectors might read this. If they’re thinking about
commencing a transfer pricing audit it will strengthen the possibility,” said
Shiv Mahalingham, a director at Alvarez & Marsal Taxand.
Transfer pricing by definition takes place across borders, and wins in other
countries have seen the taxman use them as a springboard. UK transfer pricing
audits shot up after GSK paid a $3.4bn (£2.3bn) fine to the US Internal Revenue
Service in 2006.
But, perhaps in a bid to stop companies heading to other tax destinations,
HMRC said it is prepared to help firms before there is a need to hit them with
an audit. “Transfer pricing issues can arise simply because some transactions
are hard to price. HMRC works with business and other tax authorities to try and
ensure that these difficulties can be resolved and that companies are not
subject to double taxation on the same profits,” a spokesman said.
At HMRC, Dmitri Surendran was responsible for leading the London team of the offshore, corporate and wealthy unit of the fraud investigation service
Research also finds that 84% of businesses believe that the government has not provided enough information about digital tax plans
A total of £16bn was lost through tax fraud last year, according to estimates released by Pinsent Masons
Additional tax a result of compliance investigations by HMRC, but overall revenue falls