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HMRC investigations into transfer pricing down 15%
June, 08th 2016

The number of HMRC investigations into high-value big companies suspected of using transfer pricing to avoid tax has fallen by 15% in a year, according to UHY Hacker Young

The research found that HMRC opened 391 transfer pricing reviews in the year ended 31 March 2015, down from 450 in 2013/14.

According to UHY Hacker Young, the fall in the number of investigations suggests that companies are now becoming less aggressive in the methods they use to mitigate their UK tax bills, as concerns over reputational damage mount.

This follows a period of highly successful HMRC campaigns to crack down on abusive transfer pricing.

Roy Maugham, tax partner at UHY Hacker Young, said, “HMRC’s clampdown on companies it suspects of avoiding UK tax through manipulation of transfer pricing methods appears to be working.

“Transfer pricing is an essential tool of tax planning for multinationals but some companies have pushed the boundaries of this and used transfer pricing to actively avoid paying their full UK tax liability.

“HMRC investigations in recent years have been successful in driving down the number of companies looking to exploit transfer pricing to avoid UK tax.”

According to Maugham, multinationals are also more concerned about negative publicity over aggressive use of transfer pricing after a number of high-profile companies, including Starbucks, have come under fire from the media and HMRC as a result of their transfer pricing practices.

Maugham added that companies are "increasingly concerned about the effect negative public opinion can have on their reputation and, ultimately, revenues".

UHY Hacker Young said high profile tax avoidance cases including Google’s recent £130m tax avoidance settlement with HMRC appears to have deterred other companies from following suit.

The accountancy group also suggested that the UK’s reduced corporation tax of 20%, may have led to the fall in the number of companies seeking to avoid UK tax as companies now have a more manageable amount to pay.

“Due to the increasingly favourable UK corporation tax rate, it may be the case that some companies are less driven to actively look for ways to avoid paying their tax,” Maugham said.

A spokesperson for HMRC said, "We subject large businesses to an exceptional level of scrutiny, with over two thirds of the UK's 800 largest businesses under active investigation at any one time.

"We focus our resources on those businesses we think least likely to be playing by the rules, spending much less time with the majority who are open and transparent with us. These figures bear out the effectiveness of that strategy."

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