The UK Parliament’s Public Accounts Committee is taking evidence on 11 February 2016 in relation to the tax affairs of multinational enterprises. In advance of the parliamentary hearing the UK tax authority HMRC has published a factsheet on its approach to taxing multinationals.

Aggressive tax planning by multinationals has been the focus of media attention in the UK and in the view of HMRC this has given rise to misunderstandings as to how tax affairs are handled. HMRC points out that aggressive tax planning exploits the complexity of the international tax system and that this requires a global solution. In this connection HMRC has been playing an active role in the G20/OECD project on base erosion and profit shifting (BEPS) and in encouraging tax authorities throughout the world to share information on tax affairs of multinationals.

HMRC points out that the corporation tax gap – the gap between amounts of corporation tax due and the tax actually collected – has decreased from 9.3% of corporation tax liabilities in 2010/11 to 6.7% in 2013/14. HMRC has won more than 80% of the tax avoidance cases that have gone to tax tribunals and has secured almost GBP 3.2 billion in tax through challenging transfer pricing arrangements by multinational groups.

Recent measures taken by the UK government include the Diverted Profits Tax; the General Anti-Abuse Rule (GAAR); Accelerated Payments Notices requiring disputed tax to be paid up-front; and active participation in the G20/OECD BEPS project. Proposed measures to be included in the Finance Bill 2016 include a legal requirement for large business to publish their annual tax strategy in relation to UK activities; and a Special Measures approach targeting large businesses that have an ongoing history of aggressive tax planning which constitutes a risk to the Exchequer.

HMRC points out that at any particular time around two thirds of the largest 800 businesses operating in the UK are the subject of a tax investigation. Where a business should have paid more tax HMRC disputes the amount paid and either reaches a settlement or takes the matter to a tribunal or court. Where a dispute is settled by agreement this is done as provided for in the tax law and the same approach is taken for businesses of all sizes. HMRC’s approach to resolving disputes is published in the Litigation and Settlement Strategy.

HMRC has a strict duty of confidentiality although it is permitted by law to disclose information about identified taxpayers for the purpose of performing its functions. HMRC states that it is transparent about the way it conducts enquiries and that a Tax Assurance Commissioner was appointed in 2012 to challenge its decision making on tax cases.