UK tax authorities are chasing US-based multinationals for £4.6bn in underpaid tax last year, up a third since 2017, as the clampdown on companies diverting profits overseas ramps up, reports Accountancy Daily.
The tax gap was up 35% from £3.4bn in the previous year, according to research from Pinsent Masons, which calculates US-based multinationals account for 17% of the total amount of tax that HMRC was targeting last year, with a total of £27.8bn in underpayments by large corporates.
According to its analysis, Swiss-based businesses represented the second highest source of underpaid tax at 6%, followed by Ireland (3%) and France (2%).
The diverted profits tax (DPT), set at 25%, is designed as an incentive to groups to adjust their transfer pricing, as paying more corporation tax at the lower rate of 19% can eliminate a DPT liability.
DPT raised £388m in 2017-18, against an estimate of £360m forecasted when the tax was introduced.
Pinsent Masons says multinational technology groups have been a focus for HMRC’s diverted profits initiatives. This is because digital business models enable the company to generate revenues in places where it has little physical presence and therefore, under current international tax rules established in a pre-digital era, a limited tax liability.
Jason Collins, partner at Pinsent Masons, said: ‘HMRC is under enormous pressure to collect extra revenue and that is leading to more pressure on businesses both from domestic and foreign authorities.
‘Often the large amount HMRC initially believes has been underpaid boils down to basic misunderstandings with businesses and past experience is that HMRC will only collect half the amount it initially sets out.
‘It is not just multinational businesses on HMRC’s radar – the affairs of all large businesses are under growing scrutiny. The amount of tax HMRC thinks was underpaid last year was a record high and it will be looking to act on this.’