LONDON: The amount of disputed tax relating to the transfer pricing of the U.K.’s largest businesses has risen 60 percent in the past year, according to law firm Pinsent Masons. Her Majesty’s Revenue and Customs, the U.K.’s tax authority, is reviewing as much as 3.8 billion pounds ($4.9 billion) of large U.K. businesses’ transfer pricing, the London-based firm said June 5. “The value of tax HMRC believes it could be owed has risen substantially, and we are likely to see increased activity in this space going forward,” Heather Self, a U.K. tax partner at Pinsent Masons, said in a news release. The latest figures come as HMRC aims to raise an additional 5 billion pounds a year by 2020 through tackling abusive tax arrangements, aggressive planning, and tax system imbalances. Transfer pricing, defined as the price at which divisions of a business transact with each other, is an area of focus for tax authorities amid efforts to clamp down on multinational companies exploiting legal loopholes to avoid tax.
HMRC has been investing in transfer pricing specialists, aiming to ensure “robust” compliance procedures, Self said. The total number of transfer pricing reviews into the U.K.’s 2,000 largest businesses fell by 10 percent for the 2016 financial year to 362, according to Pinsent Masons’ figures, obtained through a Freedom of Information request. The drop suggests that HMRC is focusing on higher-value and large-scale disputes, the law firm added. Yet it fall may also mean that HMRC’s transfer pricing specialists are focused on other matters, such as the the diverted profits tax, or DPT. Pinsent Masons noted that DPT operates through two basic rules. The first rule “counteracts arrangements by which foreign companies exploit the permanent establishment rules,” and the second “prevents companies from creating tax advantages by using transactions or entities that lack economic substance.”
Introduced in April 2015, the measure imposes a 25 percent levy on any profits that multinational companies have moved from the U.K. Diageo Plc, the London-based alcoholic beverage company behind Johnny Walker and Smirnoff, said May 10 it will pay 107 million pounds after it learned that HMRC intended to issue the company an official notice under the DPT. Two months earlier, London Stock Exchange Group Plc, Europe’s second-largest stock exchange by market capitalization, said in its full-year results it has made an accounting provision of 4.5 million pounds due to “uncertain tax positions” that included the tax.
