Transparency data

Transfer Pricing and Diverted Profits Tax statistics 2021 to 2022

Published 7 February 2023

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 arising from their economic activities 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).

HM Revenue and Customs (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 yield from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	Amount (£m)
2016-17	1,618
2017-18	1,774
2018-19	1,169
2019-20	1,454
2020-21	2,162
2021-22	1,482

Enquiries (including real-time interventions)

Number of enquiry cases (including real-time interventions) settled from the 2016 to 2017 tax year to the 2021 to 2022 tax year

12 months to 31 March	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
Number of cases settled	111	134	138	125	124	175

Average age of settled enquiries from the 2016 to 2017 tax year to the 2021 to 2022 tax year

12 months to 31 March	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
Average age of settled enquiries (months)	28.8	24.7	33.1	31.4	36.0	34.0

Staff working on international issues

In 2021 to 2022 there were 398 (431 in 2020 to 2021) 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 (CT) 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.

Advance Pricing Agreements

An 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 program. The UK constantly reviews its application of the APA legislation and is looking to update its guidance on practice in the near future. 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.

Key figures

This year HMRC has agreed 20 APAs.

Number of APA cases agreed from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	APAs agreed during year
2016-17	19
2017-18	27
2018-19	30
2019-20	26
2020-21	24
2021-22	20

Average time to reach APA agreement from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	Average time to reach agreement (months)
2016-17	32.8
2017-18	37.1
2018-19	33.6
2019-20	47.9
2020-21	55.5
2021-22	58.3

Expanded data for APAs from the 2016 to 2017 tax year to the 2021 to 2022 tax year

12 months to 31 March	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
APAs agreed during year	19	27	30	26	24	20
Average time to reach agreement (months)	32.8	37.1	33.6	47.9	55.5	58.3
Applications made during year	32	16	24	29	24	40
Applications withdrawn	-	-	5	4	11	2
Applications turned down at the Expression of Interest stage	5	6	0	0	4	0

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.

Key figures

This year HMRC has agreed 7 ATCAs.

Number of ATCA’s agreed from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	ATCAs agreed during year
2016-17	124
2017-18	79
2018-19	59
2019-20	45
2020-21	23
2021-22	7

Average time to reach ATCA agreement from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	Average time to reach agreement (months)
2016-17	14.9
2017-18	17.5
2018-19	26.3
2019-20	24.4
2020-21	28.1
2021-22	44

Expanded data for ATCAs from the 2016 to 2017 tax year to the 2021 to 2022 tax year

12 months to 31 March	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
ATCAs agreed during year	124	79	59	45	23	7
Average time to reach agreement (months)	14.9	17.5	26.3	24.4	28.1	44
Agreements in force during year	479	334	255	98	97	41

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. 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.

Key figures

This year HMRC has resolved 131 MAP cases.

Number of MAP cases resolved from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	Cases resolved during the year
2016-17	36
2017-18	71
2018-19	95
2019-20	72
2020-21	62
2021-22	131

Average time to resolve MAP cases from the 2016 to 2017 tax year to the 2021 to 2022 tax year

Year	Average time to resolve cases (months)
2016-17	24.4
2017-18	27.5
2018-19	27
2019-20	22.86
2020-21	34.4
2021-22	21.1

Expanded data for MAP cases from the 2016 to 2017 tax year to 2021 to 2022 tax year

12 months to 31 March	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
Cases resolved during the year	36	71	95	72	62	131
Cases admitted during the year	80	103	91	80	128	96
Average time to resolve cases (months)	24.4	27.5	27	22.86	34.4	21.1

The Profit Diversion Compliance Facility

In January 2019 HMRC launched a new compliance facility – the Profit Diversion Compliance Facility (PDCF). Read more about the Profit Diversion Compliance Facility.

HMRC is identifying and writing to specific multinationals (PDCF letters) that could be diverting profits away from the UK.

Key figures and outcomes

Key figures and outcomes for the period to 31 March 2022

12 months to 31 March	2018-19	2019-20	2020-21	2021-22
Number of PDCF letters issued	36	71	28	30
Number of registrations	21	55	19	23
Number of cases resolved	0	<5	22	26

Points to note:

• due to the impact of the COVID-19 pandemic, HMRC granted a number of PDCF registrants additional time to complete their disclosure reports
• some multinationals registered to use the facility to put their tax affairs on a better footing without waiting for a PDCF letter from HMRC
• the resolved cases have completed the PDCF process in an average of 16.5 months from registration meeting to receiving a decision from HMRC and 96% of those had their final proposals accepted
• over £516 million additional revenue has been secured from resolution proposals and changes in customer behaviour

HMRC is investigating those registrants where their final proposals were rejected, and most multinationals that received PDCF letters and chose not to register.

HMRC-commissioned research

HMRC commissioned by tender external research to gain a greater understanding of customers’ experience of the PDCF and Diverted Profits Enquiry process, including how the processes might be improved and whether they impact customers’ behaviour.

This research by IFF Research is based on 35 qualitative in-depth interviews with Large and Mid-sized Business customers, carried out in April and May 2022.

The independent market research commissioned by HMRC found that the majority of businesses surveyed:

• preferred to register to use the PDCF rather than risk an HMRC enquiry
• considered that the timescales were realistic and the settlements reasonable
• felt the process had a positive impact on their working relationship with HMRC (none felt that it had a negative impact)
• felt that it was an effective approach to resolving tax uncertainty as it put the responsibility on the business to do most of the investigation and reporting. It encouraged a cooperative approach, and is likely to be less invasive, costly and potentially publicly damaging than an HMRC enquiry

The PDCF is proving to be very successful. Around two-thirds of the large businesses targeted decided to use the facility to bring their tax affairs up to date quickly and efficiently.

This also allows HMRC to focus even more resources on those which avoid paying tax. Accordingly, HMRC is reviewing how the PDCF can be expanded and used to help address other areas of tax risk.

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 CT, 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 net amount

The DPT net amount is the 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 CT 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.

Net DPT amounts from 2016 to 2017, to 2021 to 2022

	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
DPT net amount (£m)	138	219	12	17	151	198

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.

Notifications from 2016 to 2017, to 2021 to 2022

	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22
DPT Notifications received	203	73	59	47	25	30

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 2021 to 2022 HMRC issued 49 DPT preliminary notices to 14 customer groups and 49 DPT charging notices to 14 customer groups.

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.

Investigations into diverted profits

When investigating arrangements to divert profits HMRC considers relevant accounting periods before and after DPT was introduced. Most of these investigations are resolved by the business agreeing to change its transfer pricing and pay additional CT.

The DPT is helping to encourage cooperation with HMRC investigations and facilitating settlements. Some businesses have chosen to change their behaviour and pay CT arising on their economic activities in the UK rather than pay tax at a higher rate.

A year-by-year breakdown of the Diverted Profits Tax results from 2016 to 2017 to 2021 to 2022

	2016-17	2017-18	2018-19	2019-20	2020-21	2021-22	Total
Net amount of DPT from Charging Notices (£m)	138	219	12	17	151	198	735
Additional tax, primarily CT from transfer pricing settled investigations into diverted profits (£m)	336	968	548	664	1,467	453	4,436
Additional VAT from business restructuring (£m)	-	193	1,777	659	33	0	2,662
Total	474	1,380	2,337	1,340	1,651	651	7,833

From the 2015 to 2016 tax year when DPT was introduced to the end of the 2021 to 2022 tax year, over £8 billion has been secured.

The additional tax and VAT secured refers to where the business has agreed to stop diverting profits, and calculates its profits for CT differently leading to additional CT for the past and future; and in some cases, restructuring results in additional VAT that will be billed through UK companies. It therefore refers to a wider span of years than the years covered by the DPT policy measure. It also includes a small amount relating to additional employment taxes.

From April 2015 to March 2022 DPT has helped HMRC to settle over 170 investigations for additional CT - this yield is included in additional CT from adjustments to transfer pricing. Business restructuring (as a result of investigations or the introduction of DPT) has led to additional VAT of over £2.6 billion.

HMRC is currently carrying out around 100 reviews into multinationals with arrangements to divert profits (including those who have registered under the PDCF) and the total amount of tax under consideration in these cases was £2.4 billion at the end of March 2022.

The independent market research referred to above reported the following findings from businesses providing feedback on the Diverted Profits enquiry process:

• about half of businesses felt that HMRC evidence-gathering was targeted and focused although a similar number felt that it was unfocused and exhaustive
• most businesses felt that HMRC understood their technical arguments and that the final resolution was acceptable. But the majority suggested there was room for improvement by HMRC in the way it enquired
• the majority changed their transfer pricing policies in the UK
• most businesses felt that the enquiry had not adversely impacted their working relationship with HMRC

HMRC is litigating various international tax risk disputes where the business was not prepared to change their arrangements and pay additional CT. If HMRC have major concerns about the way that arrangements to divert profits have been implemented, and/or suspicions that we have been misled, we refer our concerns to colleagues in Fraud Investigation Service in accordance with our standard procedures.  There are a number of large businesses under civil or criminal investigation with HMRC’s Fraud Investigation Service.

HMRC’s work on Diverted Profits has also had a wider impact. HMRC is exploring with professional bodies, large firms of advisers and other tax authorities how to improve the quality of tax advice provided by these firms and how to discourage tax avoidance by large businesses and wealthy individuals. HMRC is also reviewing the effectiveness of its enquiries under the Review of Tax Administration for Large Businesses programme.

Background notes

We have improved how we measure compliance transfer pricing yield. As such, we have reported from 2018 to 2019, to 2021 to 2022 figures for transfer pricing yield within the publication on a year of impact basis. Because of this change the 2018 to 2019, to 2021 to 2022 yield are not comparable with the yield in previous years.

The total figures used in the table within the Investigations into Diverted Profits section covers the impact of the DPT legislation over a number of years, and the total figures include all cash collected and the total future revenue benefit based on old reporting methodology. The change to reporting in HMRC Annual Report and Accounts in 2018 to 2019 has no impact on the total future revenue benefit that we score, only the year in which we score it. Therefore, the cumulative totals in this document represent the overall amounts secured as a result of the DPT legislation although some of this will only score as compliance yield in future years. The same approach has been taken with the Profit Diversion Compliance Facility figures stated in this publication.

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 from later reports include other staff working on international issues.

In previous years we recorded APA applications withdrawn under ‘applications turned down’. From 2018 to 2019 we have shown withdrawn applications separately.

The MAP cases resolved and admitted represent 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.

We now refer to the DPT yield to mean the DPT net amount. As set out in the Diverted Profits Yield: methodological note, from 2018 to 2019 the decision was taken to stop estimating yield from compliance-related behavioural change and instead this element of additional CT relating to behavioural change is included in the wider figure for transfer pricing yield.

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.

PDCF registration numbers have been updated to correct prior year understatements.