On 25 January 2024 HMRC published the latest set of statistics relating to transfer pricing and the diverted profits tax. The latest release contains data up to end of the 2022/23 tax year.
The transfer pricing work is an important part of HMRC’s strategy to ensure that companies pay the right amount of tax. Monitoring of the costs and benefits of transfer pricing work is important for determining the effectiveness of the current approach and making decisions on any policy changes required.
Transfer pricing yield
The transfer pricing yield is the measure of the additional tax revenue collected as a result of transfer pricing enquiries; transfer pricing-related advance pricing agreements (APAs); advance thin capitalisation agreements (ATCAs); and mutual agreement procedures (MAPs). The transfer pricing yield for 2022/23 was GBP 1,635 billion.
In 2022/23 a total of 153 transfer pricing enquiry cases were settled and the average time required to settle an enquiry was 38.9 months.
Staffing
In 2022/2023 there were 397 full-time equivalent staff working on international issues involving multinationals, such as transfer pricing, diverted profits tax, controlled foreign companies and cross-border debt. HMRC devotes significant time to training staff on international tax issues.
Advance pricing agreements
In 2022/23 HMRC agreed 15 transfer pricing-related advance pricing agreements (APAs). The average time to reach an agreement was 45.5 months. As the UK works with the tax administrations of other countries to conclude bilateral or multilateral APAs, considerable time may be spent in negotiation with treaty partners, and this extends the time required to reach an agreement. The Statement of Practice on APAs (SP02/10) was updated in October 2023.
Advance thin capitalisation agreements
An advance thin capitalisation agreement (ATCA) is an agreement between a business and HMRC outlining how the transfer pricing rules apply to funding issues, and determining the appropriate amounts, terms and conditions of related party debt financing. In 2022/23 HMRC agreed 5 ATCAs and the average time required to reach an ATCA was 58 months. There were 30 ATCAs in force during the year.
Mutual agreement procedure
A total of 131 transfer pricing related mutual agreement procedure (MAP) cases were resolved in 2022/23, the same number as in the previous year, and the average time to resolve a case was 28.4 months. During the year 99 new transfer pricing MAP cases were accepted.
Diverted profits tax
The diverted profits tax (DPT) aims to discourage businesses from diverting profits abroad through complex business structures; and applies at a rate of 25% to diverted profits of UK and multinational companies. The tax applies to certain artificial arrangements that 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 2022/23 was GBP 40 million. HMRC considers that the additional tax collected as a result of the DPT is in reality higher than that shown in the statistics as taxpayers change their behaviour to pay the correct corporation tax instead of becoming liable to the DPT.
Companies must notify HMRC of arrangements that may be within the scope of the DPT. In 2022/23 a total of 23 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 2022/23 HMRC issued a total of 14 DPT preliminary notices to 8 taxpayer groups and issued 22 DPT charging notices to 6 taxpayer groups.
