UK and International Tax news

Transfer Pricing and Diverted Profits Tax Statistics for 2021 to 2022

Monday 20th February 2023

HMRC has recently published 2021 to 2022 statistics in respect of Transfer Pricing and Diverted Profits Tax 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 2016/17 to 2021/22 it secured £9.66bn of additional tax by challenging the transfer pricing arrangements of multinationals, with £1.48bn in 2021/22, down from £2.16bn raised in 2020/21.

The transfer pricing yield figures include additional tax revenue from enquiries [real time interventions], Advance Pricing Agreements, Advance Thin Capitalisation Agreements, and transfer pricing Mutual Agreement Procedure cases.

The number of enquiry cases settled from 2016/17 to 2021/22 has averaged 135 per year, with the average time taken to settle cases reducing from 36 months to 31 months.

Reduced staff numbers of 398 full time equivalents, down from 431 in 2020-2021 dealt with international tax risks, including transfer pricing, DPT, CFC and cross border debt during 2021/22.

In 2021/22, HMRC agreed 20 APAs, down from 24 in 20/21. In 2021/22, the average time taken to reach APA agreement was 58 months, compared to 55 months in 2020/21.

The number of ACTAs agreed fell from 23 in 2020/21 to 7 in 2021/22, with the average time taken to reach ATCA agreement increased from 28 months in 2020/21 to 44 months in 2021/22.

The number of MAP cases resolved increased from 62 in 2020/21 to 131 in 2021/22, with the average time taken to resolve cases reducing from 34 months in 2020/21 to 21 months in 2021/22.

Net DPT yield has averaged £122m annually over 2016/17 to 2021/22 with £198m charged in 2021/22.  Additional amounts of corporation tax resulting from TP settled investigations into diverted profits have averaged £1.3bn annually with £651m raised in 2021/22.

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.

The number of DPT notifications received by HMRC increased from 25 in 2020/21 to 30 in 2021/22.

In January 2019, HMRC launched the Profit Diversion Compliance Facility 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, including those registered under the PDCF. The total amount of tax under consideration in these cases was £2.4bn as at the end of March 2022.

HMRC has said that it is litigating various international tax risk disputes where the business was not prepared to change their arrangements and pay additional corporation tax. Where HMRC has major concerns about the way that arrangements to divert profits have been implemented, and/or suspicions that they have been misled, references to the Fraud Investigation Service are made. There are a number of large businesses under civil or criminal investigation with HMRC’s Fraud Investigation Service.

HMRC’s work on Diverted Profits has also had a wider impact. HMRC is exploring with professional bodies, large firms of advisers and other tax authorities how to improve the quality of tax advice provided by these firms and how to discourage tax avoidance by large businesses and wealthy individuals. HMRC is also reviewing the effectiveness of its enquiries under the Review of Tax Administration for large Enterprises programme.

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.

 

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