On 12 November 2020 HMRC published updated statistics relating to transfer pricing and the diverted profits tax for 2019/20 (the year to 31 March 2020).

In 2019/20 a total of 125 transfer pricing enquiries were settled, with an average length of 31.4 months. The transfer pricing yield in 2019/20 was GBP 1,454 million. The yield is measured by calculating the additional tax revenue received from enquiries, advance pricing agreements, advance thin capitalisation agreements and mutual agreement procedures relating to transfer pricing.

Advance Pricing Agreements (APAs)

In 2019/20 a total of 26 APAs were agreed, with an average time to reach agreement of 47.9 months. During the year 29 new APA applications were made and four applications were withdrawn.

Advance Thin Capitalisation Agreements (ATCAs)

An ATCA outlines the application of the transfer pricing rules to funding issues such as the level, terms and conditions of debt financing between related parties. In 2019/20 a total of 45 ATCAs were agreed, in an average time of 24.4 months. A total of 98 ATCAs were in force during the year.

Mutual Agreement Procedure (MAP)

The MAP article of double tax agreements permits consultation between the competent authorities of the contracting states on issues relating to potential double taxation. The statistics relate to MAP cases involving transfer pricing and permanent establishment profit attribution. In 2019/20 a total of 72 MAP cases were resolved and the average time to resolve a case was 22.86 months. During the year 80 new MAP cases were admitted.

Diverted Profits Tax (DPT)

The DPT was introduced in the UK from 1 April 2015 to combat the diversion of profits abroad through complex business structures. The DPT applies at a rate of 25% to diverted profits of both UK and multinational companies. The tax would apply to certain types of artificial arrangement to divert profits from the UK, such as arrangements to avoid creating a permanent establishment; or arrangements without economic substance that exploit tax mismatches.

The yield from the diverted profits tax in 2019/20 was GBP 17 million. This amount was collected from the issue of DPT charging notices by HMRC. HMRC considers that the additional tax collected as a result of the DPT is in reality higher than this as taxpayers change their behaviour to pay the correct corporation tax instead of the DPT.

Companies must notify HMRC of arrangements that may be within the scope of the DPT. In 2019/20 a total of 47 DPT notifications were received, although not all notifications led to a charge to DPT.

If HMRC considers that DPT is due a preliminary notice is issued. After considering the taxpayer’s response HMRC may then issue a charging notice requiring DPT to be paid within 30 days. In 2019/20 HMRC issued a total of 55 DPT preliminary notices to 24 taxpayer groups and issued 53 DPT charging notices to 23 taxpayer groups.