Press release

Multinationals face £1.1 billion in extra tax after HMRC challenges transfer pricing

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Multinational corporations were hit with £1.1 billion in extra tax demands last year after HMRC successfully challenged the prices charged between companies in the same multinational group for goods and services.

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Providing goods and services to companies in the same group is part of normal commercial practice. However, some multinational groups try to manipulate the prices charged to reduce the tax they have to pay.

HMRC examined profit calculations under Organisation for Economic Co-operation and Development (OECD) transfer pricing rules to ensure there was no manipulation and the right amount of tax was paid.

Financial Secretary to the Treasury David Gauke said:

All companies, big or small, must pay the tax they owe and we will pursue those who abuse the rules.

We gave HMRC additional funding to challenge multinational groups to ensure the rules are followed and the right tax paid, but we are going further to ensure multinationals pay their fair share.

The government’s new tax on profits earned in the UK but diverted abroad will combat those trying to avoid paying what is owed to the public purse.

An extra £5.8 billion in tax has been secured by the specialist HMRC group that examines pricing within multinationals since it was established in 2008.

The government has been clear that multinational companies that do business in the UK should pay their fair share of tax. This is why it is taking action to address the concern that some businesses pay little or no tax on profits made in the UK. From April, multinationals will face a 25% tax on profits generated in the UK which they then shift out of the country to avoid paying UK tax.

The UK is also taking a lead role in an international effort to reform the tax framework and ensure that profits are taxed where they are generated.

The transfer pricing statistics are available here.

Published 6 March 2015