HMRC released today extensive statistics for the first time about transfer pricing enquiries, Advanced Pricing Agreements (APAs), and Mutual Agreement Procedure (MAP). Information can be accessed at: http://www.hmrc.gov.uk/international/transferpricing.htm
Commenting on the statistics, Andrew Hickman, partner in KPMG’s Transfer Pricing practice, said:
“HMRC has cleared old transfer pricing cases, including some very large ones. We can now expect more cases to be taken up to close the tax gap, and the statistics already show a focus on smaller taxpayers in addition to the largest multinationals.
“Hard data about HMRC’s transfer pricing efforts has not been readily available, and so publication is welcomed. Tax yield fluctuates widely year to year because of the effects of small numbers of very large cases, but averages just below £1bn annually with a growing contribution from smaller multinational groups. HMRC’s focus on conducting enquiries more efficiently has resulted in average time taken reducing from nearly three years to two years. Over the past four years the yield has derived mainly from the Large Business Service, but the yield from Local Compliance is growing significantly, suggesting a greater focus on smaller multinational groups and inbounds alongside the traditional focus on the largest multinational companies.
“The APA programme is expanding, with a 50% increase in applications in 2011 compared with previous year. To agree 50% of APAs within 14 months is commendable; some of these will be unilateral, but it is likely that many will be bilateral and continuing to drive down the time taken to agree APAs will be very welcome.
“The MAP/Arbitration caseload remains relatively modest (39 cases admitted during the year), suggesting taxpayers either bear the cost of double taxation or seek relief by other means. There is no information about how many cases successfully eliminate double taxation (but all cases under Arbitration are required to do so).”
Analysis
Enquiries
Tax yield arising from transfer pricing enquiries was well in excess of £1bn in 2009 and 2010. Yield fell in year to 31 March 2011 to £432m, but at the half-year mark in the current year yield has already overtaken the total yield for 2011.
Over the past four years the yield has derived mainly from the Large Business Service, but the yield from Local Compliance is growing significantly, suggesting a greater focus on smaller multinational groups and inbounds alongside the traditional focus on the largest multinational companies.
HMRC’s focus on settling old cases has resulted in settlement of 90% of cases open as at 1 April 2008, and the average enquiry time is now 24 months.
APAs and MAP
HMRC has a well-established programme for Advance Pricing Agreements and received 49 applications in the year to 31 March 2011, settled 35, and had 69 on hand. The average time to reach agreement is less than 24 months, with 50% of APA agreed within 14 months.
There were 173 applications on hand for Advance Thin Capitalisation Agreements at 31 March 2011, and the average time to reach agreement was under 10 months.
Mutual Agreement Procedure and Arbitration cases to eliminate double taxation arising from transfer pricing adjustments made by HMRC and treaty partners totalled 92 at 31 March 2011 with an average time taken of 27 months, although 50% were resolved within 19 months.
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Mark Hamilton, KPMG Corporate Communications 020 7694 2687
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