According to research from the law firm Pinsent Masons, HMRC launched 362 reviews into business transfer pricing in 2015/16. The amount potentially under dispute reached £3.8bn in 2016, up by 60% on the previous year.
As some of the multinationals have been accused of deliberately transferring profits from the UK to lower tax jurisdictions to reduce their UK tax liability, transfer pricing remains an “area of intense focus” for HMRC, Heather Self, partner at Pinsent Masons said.
“They have been investing in specialists on the issue and businesses need to ensure that compliance procedures surrounding the process are robust. 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,” he said.
The total number of reviews by HMRC fell by 10% in 2016, which, said Pinsent Masons, suggested the Revenue is focusing on higher-value, large-scale cases. This could also be a result of the Diverted Profits Tax, introduced in 2015 by then chancellor George Osborne. Pinsent Masons explains that the Diverted Profits Tax introduced a new tax on profits diverted from the UK to another jurisdiction, operating through two basic rules. "The first rule counteracts arrangements by which foreign companies exploit the permanent establishment rules and the second rule prevents companies from creating tax advantages by using transactions or entities that lack economic substance," he explained.
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