HMRC are targetting transfer pricing

HMRC have raised a further £253 million in taxes from investigations into transfer pricing arrangements with mid sized firms according to new figures say Harris & Co accountants Northampton.

Pinsent Masons says this represents an increase of 68% over the £151m HMRC received from mid-cap businesses’ transfer pricing in 2011/12, and is more than 10 times the tax yield from that area in 2007/8.

The firm calculates that this is the first time HMRC has received more transfer pricing yield from its local compliance teams than from the Large Business Service, which deals with the UK’s 770 largest businesses.

Heather Self, Pinsent Masons partner, said: ‘These numbers should be a warning to mid-tier businesses that their transfer pricing arrangements are now firmly on HMRC’s radar. Any company of significant size with overseas operations should be aware that HMRC is now actively pursuing businesses below the top tier to reel in additional tax.’ 

The firm says its research shows  HMRC took an average of 26 months to pre-approve businesses’ transfer pricing’ arrangements during the 2012/13 tax year, 54% longer than the 16.9 month average wait a year earlier. HMRC’s published target for completing such approvals is 18 months.

Pinsent Masons says this delay is creating considerable uncertainty for businesses who it says are being forced to put their transfer pricing arrangements into action without HMRC approval. 

Self said: ‘A lot of big businesses are questioning the management of transfer pricing cases within HMRC. While they are undoubtedly complex and challenging cases to settle, reaching a resolution within a reasonable commercial timeframe should be one of HMRC’s prime concerns.   HMRC, like all government departments, is under continuing pressure to reduce costs, but has been given additional resources to deal with avoidance and transfer pricing issues.  It needs to deploy those resources effectively.