Transparency data

Transfer Pricing and Diverted Profits Tax statistics, 2019 to 2020

Published 12 November 2020

The transfer pricing rules and the Diverted Profits Tax (DPT) are important elements in a range of measures to make sure multinationals pay the right amount of tax on the share of their profits that arises in the UK.

Transfer pricing

The UK’s transfer pricing rules set out how transactions between connected parties are priced for tax purposes. This includes transactions between companies in the same group. The rules ensure that the UK can tax its share of profits in accordance with the internationally recognised transfer pricing principle (known as the arm’s length principle).

HMRC challenges arrangements that do not allocate the right amount of profits (the arm’s length amount) to the UK.

Transfer pricing yield

The transfer pricing yield figures include additional tax revenue from enquiries (including real time interventions), Advance Pricing Agreements (APAs), Advance Thin Capitalisation Agreements (ATCAs) and transfer pricing Mutual Agreement Procedure (MAP) cases.

Transfer pricing (TP) yield - 2014 to 2015, to 2019 to 2020

Year	Amount
2014/15	£707m
2015/16	£853m
2016/17	£1,618m
2017/18	£1,774m
2018/19	£1,169m
2019/20	£1,454m

The TP Yield has fluctuated between £707 million and £1,774 million from 2014 to 2015, to 2019 to 2020. The TP yield has increased by £285 million from £1,169 million in 2018 to 2019 to £1,454 million in 2019 to 2020.

Enquiries (including real-time interventions)

Average age of settled enquiries

12 months to 31 March	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20
Average age of settled enquiries (months)	22.4	27.6	28.8	24.7	33.1	31.4

Number of enquiry cases (including real-time) settled

12 months to 31 March	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20
Number of cases settled	190	129	111	134	138	125

Staff working on international issues

In 2019 to 2020 there were 456 (441 in 2018 to 2019) full-time equivalent staff working on international issues involving Multinational Enterprises (MNEs) including transfer pricing, diverted profits tax, Controlled Foreign Companies (CFCs) and cross border debt.

This figure includes time spent on international issues by dedicated international specialists, Corporation Tax specialists and policy and technical advisers.

These staff work with other expert industry and tax specialists to tackle issues that represent a substantial risk of tax loss to the Exchequer in line with HMRC’s “resource to risk” compliance policy.

HMRC has invested significant time in training staff to deal with international issues, including transfer pricing.

Advance Pricing Agreements

An Advance Pricing Agreement (APA) is a written agreement between a business and HMRC which determines the appropriate transfer pricing method to be applied to certain transactions for a set period and in advance of a tax return being made. APAs are recognised as international best practice by the Organisation for Economic Co-operation and Development (OECD) in managing compliance with transfer pricing rules.

They help tax authorities, including HMRC, to establish early on how transfer pricing rules apply to complex cross-border transactions. They provide multinational businesses with greater certainty about their tax liabilities so that they pay the right amount of tax at the right time and help to ensure that a business does not pay tax more than once on the same profits. An APA does not provide any special treatment or change the amount of tax due under the law.

A Statement of Practice, published in November 2016, explains how HMRC applies the APA legislation and operates the UK APA programme. The UK’s approach is primarily to work with the tax administrations of other countries to make bilateral, or multilateral agreements. This requires discussion and negotiation with treaty partners which impacts on the time taken to reach agreement. This year HMRC has agreed 26 APAs.

APA case agreements and average time to reach agreements

Number of APA cases agreed from the 2014 to 2015 tax year to the 2019 to 2020 tax year

Year	APAs agreed during year
2014/15	37
2015/16	22
2016/17	19
2017/18	27
2018/19	30
2019/20	26

The number of APAs agreed during the year has fluctuated between 19 and 37 from 2014 to 2015, to 2019 to 2020. There was a slight decrease between 2018 to 2019 (30) and 2019 to 2020 (26).

Average time to reach APA case agreements from the 2014 to 2015 tax year to the 2019 to 2020 tax year

Year	Average time to reach agreement (months)
2014/15	18.0
2015/16	33.0
2016/17	32.8
2017/18	37.1
2018/19	33.6
2019/20	47.9

The average time to reach agreement for APAs has increased from 33.6 months in 2018 to 2019 to 47.9 months in 2019 to 2020.

Expanded data for APA cases

Year	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20
APAs agreed during year	37	22	19	27	30	26
Average time to reach agreement (months)	18.0	33.0	32.8	37.1	33.6	47.9
Applications made during year	66	47	32	16	24	29
Applications withdrawn	-	-	-	-	5	4
Applications turned down	2	3	5	6	0	0

During the current calendar year, we have targeted our resources to settling older cases which has impacted the elapsed time statistics. Also, we have come to a trilateral solution with 2 treaty partners which has enabled a number of long running cases to be settled in this year.

Advance Thin Capitalisation Agreements

An Advance Thin Capitalisation Agreement (ATCA) is an agreement between a business and HMRC which sets out how the transfer pricing rules apply to funding issues, including the appropriate levels, terms and conditions of debt financing between connected parties, so that the UK receives the right amount of tax at the right time.

An ATCA is a form of APA and, like all APAs, it enables tax authorities to examine certain transactions and agree the appropriate transfer pricing position earlier than the usual tax return/assessment cycle would allow; it does not change the amount of tax a business must pay.

Statement of Practice 1/2012 explains HMRC’s approach. Detailed practical guidance is contained in the international manual at INTM520000.

Number of ACTA cases from the 2014 to 2015 tax year, to the 2019 to 2020 tax year

Year	ATCAs agreed during year
2014/15	213
2015/16	164
2016/17	124
2017/18	79
2018/19	59
2019/20	45

There has been a steady decline in the number of ATCAs agreed during the year between 2014 to 2015 (213) and 2019 to 2020 (45).

Average time to reach ATCA agreements from the 2014 to 2015 tax year, to the 2019 to 2020 tax year

Year	Average time to reach agreement (months)
2014/15	11.3
2015/16	11.7
2016/17	14.9
2017/18	17.5
2018/19	26.3
2019/20	24.4

There has been a gradual increase in the average time to reach agreement from 2014 to 2015 (11.3 months) to 2019 to 2020 (24.4 months). From 2018 to 2019 (26.3 months) there was a slight decrease of 1.9 months to 2019 to 2020 (24.4 months).

Expanded data for ATCA cases

Year	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20
ATCAs agreed during year	213	164	124	79	59	45
Average time to reach agreement (months)	11.3	11.7	14.9	17.5	26.3	24.4
Agreements in force during year	577	568	479	334	255	98

The number of ATCAs agreed has fallen in recent years, which has coincided with the introduction of the Corporate Interest Restriction (CIR) which took effect from 1 April 2017.

The CIR rules restrict a group’s deductions for interest expense and other financing costs to an amount which is commensurate with its activities taxed in the UK.

The rules operate mechanically and the group must apply the rules and self-assess the amount of any restriction. For some companies, this may result in interest deductions being restricted to a lower amount than would otherwise be permitted under the arm’s length principle. It is possible that affected groups have chosen not to incur the expense of applying for an ATCA.

Mutual Agreement Procedure

Most double taxation agreements include a Mutual Agreement Procedure (MAP) article allowing tax administrations to resolve cases of double taxation by consultation and mutual agreement.

A Statement of Practice 1/2018 and guidance in the International Manual outline HMRC’s procedure in relation to the elimination of double taxation under MAP and/or the EU Arbitration Convention. The majority of cases require HMRC to work with tax administrations in other countries to determine each country’s taxing rights, which affects the time needed to resolve these cases.

MAP applies to other issues as well as transfer pricing. The figures reported here cover transfer pricing and permanent establishment profit attribution issues only.

Number of MAP cases from the 2014 to 2015 tax year, to the 2019 to 2020 tax year

Year	MAP cases resolved during the year
2014/15	38
2015/16	49
2016/17	36
2017/18	71
2018/19	95
2019/20	72

The number of MAP cases resolved during the year have varied between 2014 to 2015 (38), to 2019 to 2020 (72). There was a decrease of 23 from 2018 to 2019 (95), to 2019 to 2020 (72).

Average time to resolve MAP cases from the 2014 to 2015 tax year, to the 2019 to 2020 tax year

Year	Average time to resolve cases (months)
2014/15	25.4
2015/16	18.5
2016/17	24.4
2017/18	27.5
2018/19	27
2019/20	22.86

The average time to resolve cases has fluctuated between 18.5 months and 27.5 months from 2014 to 2015, to 2019 to 2020. There was a decrease of 4.14 months from 2018 to 2019 (27 months), to 2019 to 2020 (22.86 months).

Expanded data for MAP cases

Year	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20
Cases resolved during the year	38	49	36	71	95	72
Cases admitted during the year	71	71	80	103	91	80
Average time to resolve cases (months)	25.4	18.5	24.4	27.5	27	22.86

Exchange of information

HMRC works with other tax authorities, sharing information and expertise, to identify risk and challenge arrangements. Country by Country reports have increased the information available to support HMRC’s risk assessment processes.

Arbitration

HMRC is committed to making use of the full range of dispute resolution tools, recognises the value of arbitration and will participate in appropriate cases.

Diverted Profits Tax

The Diverted Profits Tax (DPT) is designed to encourage large companies that try to minimise their tax liabilities through the use of contrived arrangements to change their behaviour and pay additional Corporation Tax, or face paying tax at a higher rate. It is not targeted specifically at any particular sectors or companies, but rather at particular behaviours and arrangements.

DPT yield

Year	2015/16	2016/17	2017/18	2018/19	2019/20
Total yield	£0m	£138m	£219m	£12m	£17m

The DPT yield is the net amount of DPT received during the year from charging and supplementary notices and not repaid. Where DPT is repaid it is usually because an enquiry has been settled on a transfer pricing basis and additional Corporation Tax has been paid. This is in line with the purpose of the DPT, which complements transfer pricing enquiries to address the diversion of profits out of the UK.

Previously, HMRC included within DPT yield an amount of additional Corporation Tax arising from transfer pricing enquiries that was estimated to result from behavioural change relating to the DPT. Due to the close association between DPT and transfer pricing enquiries, we no longer consider this subdivision of transfer pricing yield to be appropriate.

We have now decided to leave this element of additional Corporation Tax relating to behavioural change in the wider figure for transfer pricing yield, which is reported at the top of this publication, rather than attempt to identify a specific amount of that yield referable to the DPT.

HMRC continues to identify an amount of Corporation Tax arising from spontaneous behavioural change as a result of the introduction of DPT. This is reported within Corporation Tax receipts. More information can be found in the methodological note.

There is more information about the wider impact of the DPT in encouraging businesses to put their transfer pricing right and pay the right amount of tax at the right time. Read more details of the wider activities and results of the Diverted Profits Project during 2019 to 2020.

Notifications

Companies must notify HMRC if they have arrangements that potentially fall within the scope of the DPT legislation, subject to limited statutory exceptions. More than one company within a multinational group may need to notify.

Year	2015/16	2016/17	2017/18	2018/19	2019/20
DPT notifications received	16	203	73	59	47

The numbers above are the DPT notifications and analyses HMRC has received from groups where one or more companies within the group have indicated that they are involved in arrangements that may be in scope of the DPT legislation. The obligation to notify does not necessarily mean that a DPT charge will arise.

Notices

Where HMRC has reason to believe that DPT is due, a preliminary notice is issued. Depending on the company’s response, HMRC may then issue a charging notice requiring DPT to be paid by the company within 30 days.

Companies have 3 months from the end of the relevant accounting period to notify HMRC that they are potentially within scope of the legislation. HMRC then has 2 years to investigate to determine whether it is reasonable to issue a DPT preliminary notice.

In 2019 to 2020 HMRC issued 55 DPT preliminary notices to 24 customer groups and 53 DPT charging notices to 23 customer groups.

Differences between the numbers of DPT preliminary and charging notices can be due to timing differences, for example where a preliminary notice is issued at year end, or as a result of successful representations made to HMRC on the specified issues, or a case being settled on a Corporation Tax basis before the charging notice is issued.

The DPT legislation provides a 15-month review period after the notice is issued during which HMRC will continue to work with businesses to resolve the dispute. If, during the review period, HMRC is satisfied that the amount of DPT charged is excessive or insufficient, it can issue amending notices to reduce, or a supplementary notice to increase, the DPT charged. Businesses have the right of appeal against a DPT charge after the conclusion of the 15-month review period.

The DPT procedures are subject to a strict governance process, and all decisions to issue DPT notices are made by a Designated Officer, who is supported by an advisory group.

Background notes

We have improved how we measure compliance yield. As such, we have reported the 2018 to 2019 and 2019 to 2020 figures for yield within the publication on a year of impact basis. Because of this change, the 2018 to 2019 and 2019 to 2020 yield are not comparable with the yield in previous years.

Last year, we changed the way we reported the number of staff working international issues to improve accuracy. The number of staff in the 2017 to 2018 report included only International Specialists, whereas the figures for 2018 to 2019 and 2019 to 2020 include other staff working on international issues.

In previous years we recorded applications withdrawn under “applications turned down”. From 2018 to 2019 we have shown withdrawn applications separately.

This represents the number of MAP cases HMRC has recorded as beginning during the tax year. The OECD MAP Statistics Reporting Framework report uses the calendar year and includes non-transfer pricing cases. The reports are published on the OECD website.

Multiple entities within the same group may be part of the arrangements, which can mean that multiple DPT notices are required in relation to a single arrangement