Transfer pricing more workable than unitary tax, say tax chiefs

A UNITARY TAX would be time-consuming to implement and could prove more complex than transfer pricing, according to tax chiefs from PwC and the OECD in letters to the Financial Times.

Unitary taxation, where corporations would pay on a jurisdiction-by-jurisdiction basis, would “inevitably lead to double-taxation of corporate profits as countries construct different rules”, according to Will Morris, tax committee chairman of the OECD.

Currently, the principle for dividing international profit is based on the price a business would have to pay to gain goods and services from operations in other countries – the ‘arm’s length principle’.

There is “merit” in exploring the unitary system on global or European basis, said PwC head of tax Kevin Nicholson. However, he acknowledged the timescales involved in reaching any kind of consensus dictates the chancellor should focus on providing HM Revenue & Customs with greater resources to combat the use of transfer pricing – which allows companies to shift profits outside of the UK to lower tax jurisdictions – to drive down UK liabilities.

“This [granting the Revenue greater resources] would both give confidence to the public that the system is working fairly and assist businesses that want to ensure they comply fairly with the arm’s length principle,” he said.

George Osborne is likely to heed their advice and allocate £77m of HMRC’s budget a year to tackle tax avoidance arrangements, including transfer pricing.

The chancellor is due to make his Autumn Statement on Wednesday 5 December.

Related reading