What are we to make of the FT’s frontpage headline on the 25th October that “Tax lost to multinational shifting profits climbs to £5.8bn.” As you might expect, there is more behind the headline than meets the eye. The doubling of the estimated tax loss is an estimate; no more no less. Part of the rise is undoubtedly attributable to HMRC pursuing a more robust (aggressive) interpretation on what constitutes uncommercial Transfer Pricing or Diverted Profits.
The information was extracted from a freedom of information request. However the timing does look suspiciously convenient for HMRC. In the pre-budget period all departments are competing for resources and this type of headline will help in its case for greater resources to tackle tax avoidance.
The other fact which has become crystal clear is that the Diverted Profits Tax (DPT) is being used much more widely than first planned. Originally it was thought that this tax would only be used for egregious tax avoidance and not for normal company tax affairs. Indeed, DPT was dubbed the “Google tax” precisely because it was seen to be targeted at a small number of well-known companies. This is not the case with at least 70 live investigations and 14 companies having paid DPT with a tax take of £281 million on DPT alone, this is an area where we will see an ever greater concentration of resources by HMRC.
Primondell runs a Transfer Pricing course for companies and their advisors which encompasses the Diverted Profits Tax as well and looks at how companies can protect themselves from what can be extremely expensive investigations.
