HMRC transfer price probe

HMRC has increased its focus on companies suspected of using transfer pricing to avoid paying UK taxes.

According to a Freedom of Information request from law firm, Pinsent Masons, HMRC is investigating £1bn of tax linked to transfer pricing issues, up by 47% from last year's figure of £680m.

Heather Self, a Pinsent Masons partner, said: ‘There has been a lot of public discussion around companies’ UK tax bills, and these figures show that HMRC has been taking an increased interest in where multinationals with UK operations pay their taxes.

‘With increased pressure from the government to bring in more revenue, and more resources to investigate potential avoidance and evasion, HMRC has been investigating more and more tax payments. This doesn’t necessarily mean there is more avoidance or evasion taking place, but that HMRC is being more thorough with its investigations.

‘HMRC will investigate a company where it thinks it has crossed a line on transfer pricing, and HMRC will demand extra taxes from companies that do have a genuine case to answer.’

Transfer pricing is a practice which multinationals such as Amazon, Starbucks and Google have recently come under fire for, since it allows them to restructure and shift profits into lower-tax jurisdictions, escaping higher penalties in countries from which their profits are effectively derived.

Pinsent Masons dubbed the calls for law changes to prevent ‘abusive’ transfer pricing as a knee-jerk reaction.

Self said: ‘The UK has to accept that it cannot change the law on transfer pricing or the taxation of revenues unilaterally. There is already a tax on turnover in the UK and it’s called VAT. EU law does not allow the UK to create new turnover taxes.

‘Rules on transfer pricing are set by the Organisation for Economic Co-operation and Development (OECD), and while they could do with some reform, that process is actually already under way.’

She warned that the contraction of the commercial lending market will also have boosted HMRC’s transfer pricing investigations