HMRC investigations into high-value big company cross border tax cases fall 15% in a year

Publications that covered this story include:  City AM, Daily Mail and The Financial Times on 6 June 2016 and Accountancy Age, Economia and Accountancy on 7 June 2016.
  • 391 transfer pricing reviews opened last year, down from 450
  • Companies becoming less aggressive as concerns over reputational damage mount

According to our research, the number of investigations into high-value big companies that HMRC suspect of using transfer pricing to avoid tax has fallen by 15% in a year, from 450 in 2013/14 to 391 last year*.

After a period of highly successful HMRC campaigns to crack down on abusive transfer pricing, the fall in the number of investigations suggests that companies are now becoming less aggressive in the methods they use to mitigate their UK tax bills.

Transfer pricing concerns the charges made between different parts of a multinational business for goods, services or intangible assets such as intellectual property. This can affect the profits reported in each jurisdiction and therefore the amount of corporation tax paid. In some cases, tax authorities have argued that this is used as a tool to reduce tax liabilities.

Roy Maugham, tax partner, explains: “HMRC’s clampdown on companies it suspects of avoiding UK tax through manipulation of transfer pricing methods appears to be working.”

“Transfer pricing is an essential tool of tax planning for multinationals but some companies have pushed the boundaries of this and used transfer pricing to actively avoid paying their full UK tax liability.”

“HMRC investigations in recent years have been successful in driving down the number of companies looking to exploit transfer pricing to avoid UK tax.”

Roy says that multinationals are also now more concerned about negative publicity over aggressive use of transfer pricing. A number of US companies, such as Starbucks, have been subject to protest campaigns by single interest groups over their use of transfer pricing.

He adds: “In recent years a number of high-profile corporates have come under fire from the media and HMRC as a result of their transfer pricing practices. With the press prone to “naming and shaming”, companies are increasingly concerned about the effect negative public opinion can have on their reputation and, ultimately, revenues.”

High profile tax avoidance cases including Google’s recent £130 million tax avoidance settlement with HMRC appears to have deterred other companies to not follow suit.

UK Corporation Tax has fallen to 20%, leaving companies with a more manageable amount to pay and may have led to the fall in the number of companies seeking to avoid UK tax.

Roy explains: “Due to the increasingly favourable UK corporation tax rate, it may be the case that some companies are less driven to actively look for ways to avoid paying their tax.”

Number of HMRC investigations into transfer pricing falls 15% in a year as HMRC action and negative publicity takes its toll

Graph 1

*Year end March 31  2015.