HMRC’s local compliance teams’ investigations of the transfer pricing arrangements of medium-sized firms has brought in a record breaking £235m of extra tax in the past year.
This is the first time that HMRC’s local compliance teams have taken more tax from transfer pricing investigations than HMRC’s Large Business Service, which deals with the UK’s 770 largest businesses. As a result of this success, HMRC’s investigations of medium-sized firms’ transfer pricing arrangements could intensify.
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 corporation tax paid by businesses because of the impact transfer pricing has on the profits reported in different markets. Some multinational corporates have faced criticism of setting their transfer pricing to reduce their tax liabilities in higher tax jurisdictions such as the UK.
Many medium-sized businesses that use transfer pricing arrangements may have assumed that they will not face an investigation in this area as historically HMRC has pursued large multinationals. However, it is now doubtful that HMRC will abandon this lucrative source of tax revenue.