Multinationals face £1.1 billion in extra tax after HMRC challenges transfer pricing

Multinational corporations were hit with £1.1 billion in extra tax demands last year after HMRC successfully challenged the prices charged between companies in the same multinational group for goods and services.

Providing goods and services to companies in the same group is part of normal commercial practice. However, some multinational groups try to manipulate the prices charged to reduce the tax they have to pay.

HMRC examined profit calculations under Organisation for Economic Co-operation and Development (OECD) transfer pricing rules to ensure there was no manipulation and the right amount of tax was paid.

Financial Secretary to the Treasury David Gauke said:

“All companies, big or small, must pay the tax they owe and we will pursue those who abuse the rules.

“We gave HMRC additional funding to challenge multinational groups to ensure the rules are followed and the right tax paid, but we are going further to ensure multinationals pay their fair share.

“The government’s new tax on profits earned in the UK but diverted abroad will combat those trying to avoid paying what is owed to the public purse.”

An extra £5.8 billion in tax has been secured by the specialist HMRC group that examines pricing within multinationals since it was established in 2008.

The government has been clear that multinational companies that do business in the UK should pay their fair share of tax. This is why it is taking action to address the concern that some businesses pay little or no tax on profits made in the UK. From April, multinationals will face a 25% tax on profits generated in the UK which they then shift out of the country to avoid paying UK tax.

The UK is also taking a lead role in an international effort to reform the tax framework and ensure that profits are taxed where they are generated.

Notes to Editors

1. The transfer pricing statistics are available here.
2. Transfer pricing is only one area where HMRC challenges the tax declared by multinationals. From 2010 to 2014 HMRC’s large business strategy has generated £31 billion in additional revenue.
3. The UK rules covering internal pricing between companies in the same multinational group are based on international standards on transfer pricing set by the Organisation for Economic Co-Operation and Development (OECD).
4. In the 2012 Autumn Statement, the government invested £77 million in HMRC to expand anti-avoidance and evasion work, which included £30 million for transfer pricing work and strengthening risk assessment across the large business sector.
5. The Diverted Profits Tax will be applied from 1 April 2015 and will generate an estimated more than £1.3 billion in additional revenues.
6. The international work on ensuring profits are taxed where they are generated and aggressive tax planning by multinational groups was launched in February 2013 when G20 ministers asked the OECD to report on Base Erosion and Profit Shifting (BEPS). The BEPS Action Plan was endorsed by the G20 in July 2013. The project will be completed by December 2015.
7. Follow HMRC Press Office on Twitter @HMRCpressoffice
8. HMRC's Flickr channel www.flickr.com/hmrc.gov.uk