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Tax Revenue from Transfer Pricing Increases in the UK

3rd May 2022

london bridge

Conquering tax avoidance through transfer pricing has long been a priority for the UK’s Her Majesty’s Revenue & Customs (HMRC)—and the country has explored many ways to help change taxpayers’ behavior. In 2015, the UK government introduced the diverted profits tax, which penalizes large companies for base erosion and profit shifting (BEPS). Then in 2019, HMRC launched a profit diversion compliance facility, where officials identify and contact multinational companies that are suspected to be diverting profits away from the UK. The idea, of course, is that you can collaborate with the tax administration to resolve issues without a court battle, and also, that taxpayers will learn from the collaboration and change their own behavior. Then last year, the government announced its intention to require the largest companies to prepare a master and local file, beginning in April 2023 (the country-by-country report is already a requirement). The goal of these programs, naturally, is to change taxpayers’ behaviors, but also to ensure that the appropriate amount of tax is paid to the UK. When it isn’t, you can bet the UK will make every effort to collect what it believes it’s owed. In fact, recent stats show the UK has collected £700 million ($880 million) more in tax revenue in 2020-2021 than it did the year before. The UK’s transfer pricing yield increased by 48% between 2019-20 and 2020-21 it has grown from £1.45 billion to £2.16 billion. So, transfer pricing compliance clearly remains high priority for HMRC, so what kind of priority do you think it should be for you?