Insight into HMRC’s latest Transfer Pricing and Diverted Profits Tax statistics covering April 2022 to March 2023

HMRC’s latest statistics report covering Transfer Pricing (TP) enquiries, Advance Pricing Agreements (APAs), Mutual Agreement Procedures (MAPs), Advance Thin Capitalisation Agreements (ATCAs), Diverted Profits Tax (DPT) investigations and Profit Diversion Compliance Facility cases (PDCFs) highlights the additional yield from enquiries, the number of enquiries and the length of time to resolve enquiries, across each area.

Key takeaways

• Transfer pricing and tackling profit diversion remains a key priority and revenue raiser for HMRC. As such, we expect HMRC to continue to deploy resources in this area and associated international tax issues.
• The appetite for business certainty, dispute prevention, and therefore APAs, continues to grow. This mirrors what we are seeing not only in the UK but also across our international operations.
• As the PDCF process has been viewed as a success, “nudge” letters will continue to be issued to taxpayers on an ad hoc basis as and when HMRC’s risk profiling identifies a potential candidate. The PDCF stats also demonstrate how the facility is an effective and efficient way of resolving transfer pricing and international tax matters.

A summary of the statistics and our view of these are set out below.

Transfer Pricing enquiries: the yield has risen slightly to GBP1.6 billion demonstrating that transfer pricing remains a key area of focus for HMRC. The time taken to resolve enquiries has also risen to over 3 years (40 months), which mirrors our experience of what we are seeing with clients, where the time taken to gather contemporaneous evidence and then analyse the relative importance of the evidence in complex matters is time and resource consuming.

Diverted Profits Tax: whilst the amount of DPT generated from charging notices was relatively small at GBP40 million, the amount of additional Corporation Tax from DPT investigations was GBP253 million. This aligns with one of the main purposes of the DPT legislation to encourage behavioural change and ensure the correct amount of Corporation Tax is paid.

HMRC has also confirmed in the consultation response summary that DPT remains a significant tool in HMRC’s armoury to tackle profit diversions and here to stay. This is emphasised by the fact that DPT will keep its anti-avoidance characteristics when the reforms which will remove DPT’s separate tax status to be combined into Corporate Tax regime.

Advance Pricing Agreements: the APA programme has seen a substantial improvement in time to reach an agreement, a reduction by 13 months to 45.5 months. 15 APAs were agreed in 22/23, slightly down from the 20 concluded in 21/22; these figures reflect the impact of the resolution of some complex applications that have been under discussion for some time.

New applications have risen again from 40 to 45. This mirrors what we are seeing in the market where clients strive for tax certainty and dispute prevention with a preference to protect challenging material transactions with the UK via an APA over an enquiry.

Mutual Agreement Procedure: generally, the MAP statistics are broadly the same as the prior year in terms of number of cases settled (131) and cases admitted (99 vs 96), the main change was in the time taken to resolve cases has risen by 7 months to 28.4, which might be in part due to meetings taking place physically compared to virtually during the pandemic.

Profit Diversion Compliance Facility: since its inception in January 2019, HMRC has issued 167 “nudge” letters inviting taxpayers to join the facility – of which 121 joined. HMRC confirmed that they are investigating those taxpayers who decided not to join, which aligns with our experience.

In the reported period only 2 “nudge” letters were issued, as HMRC focussed resources on progressing and concluding older PDCF cases. However, we know that another tranche of letters was issued shortly after this reporting, and we understand that “nudge” letters will continue to be sent to taxpayers when HMRC identifies appropriate taxpayers through their risk assessment process.

Since January 2019, on average PDCF cases take on average 20 months to complete, which is almost half as long as the average TP enquiry, 97% of cases had their proposals accepted and over GBP732 million of additional tax has been secured through the programme.

For further information, please do contact your usual DLA Piper transfer pricing contact.