UK and International Tax news
HMRC Publishes Latest TP and DPT Statistics
Tuesday 3rd May 2022
HMRC has recently published 2020 to 2021 statistics in respect of Transfer Pricing [TP] and Diverted Profits Tax [DPT] yields and related information.
The UK’s transfer pricing rules set out how transactions between connected parties are priced for tax purposes and include transactions between companies in the same group. The rules are designed to ensure that profits are taxed in accordance with the internationally recognised transfer pricing principle known as the arm’s length principle. HMRC challenges arrangements that do not allocate arm’s length profits to the UK.
In the years 2015/16 to 2020/21, it secured £9.03bn of additional tax by challenging the transfer pricing arrangements of multinationals, with £2.162bn in 2020/21, an increase of nearly 50% from £1.454bn raised in 2019/20.
The transfer pricing yield figures include additional tax revenue from enquiries [real time interventions], Advance Pricing Agreements [APAs], Advance Thin Capitalisation Agreements, and transfer pricing Mutual Agreement Procedure cases.
The number of enquiry cases settled from 2015/16 to 2020/21 has averaged 127 per year, with the average time taken to settle cases increasing from 25 months to 36 months.
HMRC has increased the number of staff dealing with international tax risks, including transfer pricing, DPT, CFC and cross border debt to 431 full time equivalent staff. HMRC says it recognises the importance of identifying and tackling international tax risks and is invested in building the capability of the staff involved who work with other expert industry and tax specialists to tackle those cases that represent a substantial risk of tax loss to the Exchequer in line with HMRC’s “resource to risk” compliance policy.
In the period 2015/16 to 2020/21 an average of 24 APA cases annually were agreed, with the average time taken to reach APA agreement increasing from 33 months in 2015/16 to 55 months in 2020/21.
The number of ACTAs agreed has fallen from 164 in 2015/16 to 23 in 2020/21 whilst the average time taken to reach ATCA agreement has increased from 12 months in 2015/16 to 28 months in 2020/21.
The number of MAP cases resolved from 2015/16 to 2020/21 averaged 64 per year, with the average time taken to resolve such cases increasing from 18 months in 2015/16 to 34 months in 2020/21
The DPT rules are designed to encourage large companies that try to minimise their tax liabilities through the use of contrived arrangements to change behaviour and pay additional corporation tax, or face paying tax at a higher rate. It is not targeted specifically at any particular sectors or companies, but rather at particular behaviours and arrangements.
DPT yield has averaged £107m annually with £151m charged in 2020/21. Additional amounts of corporation tax resulting from TP settled investigations into diverted profits have averaged £727m annually with £1.467bn raised in 2020/21.
Companies have to notify HMRC within three months from the end of the relevant accounting period if they have arrangements that potentially fall within the scope of the DPT legislation, subject to limited statutory exceptions. HMRC then has two years to investigate to determine whether it is reasonable to issue a DPT preliminary notice. Any DPT is payable within 30 days.
Whilst the number of DPT notifications received by HMRC increased from 16 in 2015/16 to 203 in 2016/17, they have decreased subsequently to 25 in 2020/21.
In January 2019, HMRC launched the new Profit Diversion Compliance Facility [PDCF] which has been designed to encourage MNEs with arrangements that might fall within its scope to review the design and implementation of their TP policies. And change them if appropriate and to use the facility to put forward a report with proposals to pay any additional tax, interest and penalties.
HMRC is currently carrying out 100 investigations into MNEs with arrangements to divert profits, excluding those registered under the PDCF. The total amount of tax under consideration in these cases was £3.8bn as at the end of March 2021.
If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.Contact Us