On 27 January 2020 HMRC published statistics relating to transfer pricing and the diverted profits tax.

HMRC had 441 full time equivalent staff working on international tax issues involving multinational groups in 2018/19, including transfer pricing, diverted profits tax, CFCs and cross-border debt.

In 2018/19 a total of 138 transfer pricing enquiries were settled and these settled enquiries had an average length of 33.1 months. HMRC is currently devoting resources to bringing older cases to a conclusion, and this process has been helped by the introduction of the diverted profits tax which prompts taxpayers to notify HMRC promptly and settle transfer pricing issues.

Advance Pricing Agreements

In 2018/19 a total of 30 advance pricing agreements (APAs) were agreed, the average time to reach agreement being 33.6 months. During the year 24 new APA applications were made and five applications were withdrawn.

Advance Thin Capitalisation Agreements

An Advance Thin Capitalisation Agreement (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 2018/19 a total of 59 ATCAs were agreed, the average time to reach to reach agreement being 26.3 months. A total of 255 ATCAs were in force during the year.

Mutual Agreement Procedure

The mutual agreement procedure (MAP) article of double tax agreements permits tax administrations to resolve issues relating to potential double taxation by consultation between the competent authorities of the two contracting States. The statistics relate to MAP cases involving transfer pricing and permanent establishment profit attribution, but other matters may also be the subject of a MAP process.

In 2018/19 a total of 95 MAP cases were resolved and the average time to resolve the MAP cases was 27 months. During the year 91 new MAP cases were admitted.

The OECD peer review process under the minimum standard on making dispute resolution mechanisms more effective under BEPS Action 14 identified certain issues in the UK’s dispute resolution procedures. The UK has adopted the peer review’s recommendations through the Multilateral Instrument to implement tax treaty related BEPS recommendations.

Diverted Profits Tax

A diverted profits tax was introduced in the UK from 1 April 2015 to combat the diversion of profits abroad by means of complex business structures. This tax applies to diverted profits of both UK and multinational companies at a rate of 25%. 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 2018/19 was GBP 12 million. This amount was collected from the issue of DPT charging notices by HMRC. In other cases HMRC points out that taxpayers have changed their behaviour to pay the correct amount of corporation tax rather than have to pay the DPT, so the additional tax collected as a result of the DPT is in reality higher than this.

Companies must notify HMRC of arrangements that may be within the scope of the DPT. In 2018/19 a total of 59 DPT notifications were received, although not all notifications led to a charge to DPT.