HMRC’s enquiries into transfer pricing arrangements yielded over 10% (GBP 153 million) more in 2022-23 than in 2021-22, with the total tax take in this area rising to over GBP 1.6 billion.
HMRC’s latest statistics, issued 25 January 2024, cover advance pricing agreements (APAs), advance thin capitalisation agreements (ATCAs), and transfer pricing mutual agreement procedures (MAP) as well as transfer pricing enquiries. The results show that HMRC has caught up on the post-COVID backlog of cases and continues to intensify its efforts to address transfer pricing issues and ensure compliance.
The number of transfer pricing enquiry cases, including real-time interventions, has decreased slightly from 175 in 2021-22 to 153 in 2022-23. However, the average age of settled enquiries has increased to 38.9 months from 34 months, indicating a more in-depth analysis and expectation of quality from HMRC.
The number of APAs agreed during the year has fallen by a quarter to just 15, with the average time to reach agreement decreasing by over a year to just under four years. While the decrease in time to completion is welcome, if timelines cannot be shortened further, interest in APAs may continue to fall in the fast-moving trading conditions businesses increasingly face.
Similarly, applications for advance thin capitalisation agreements (ATCAs) remain at very low levels, with only five agreed during the year. This coincides with the introduction of the Corporate Interest Restriction (CIR) rules, which may result in interest deductions being restricted to a lower amount than would otherwise be permitted under the arm’s length principle.
The deterrent effect of the diverted profits tax (DPT) is becoming clearer: the net amount paid for the tax year 2022-23 was just GBP 40 million, down from GBP 198 million in 2021-22, but the continued increase in transfer pricing yield indicates that DPT is working.
HMRC activity with Profit Diversion Compliance Facility (PDCF) letters was minimal (only two were issued in 2022-23, compared to 30 in 2021-22), but this may mean it is more likely that there will be another burst of activity in 2024, not that HMRC is giving up on this useful enforcement tool. In fact, the report explains that this low number is due to HMRC focusing resources on the conclusion of cases within the facility, rather than issuing targeted letters, adding that HMRC are starting to issue further PDCF letters during the 2023-24 period.
Overall, HMRC’s focus remains on promoting tax compliance and addressing transfer pricing issues, with more in-depth analysis and higher quality compliance expected of taxpayers – we have been warned!
If you have any questions, please contact the author(s) or reach out to one of our Global Transfer Pricing professionals
Ken Almand
BDO in United Kingdom
HMRC’s latest statistics, issued 25 January 2024, cover advance pricing agreements (APAs), advance thin capitalisation agreements (ATCAs), and transfer pricing mutual agreement procedures (MAP) as well as transfer pricing enquiries. The results show that HMRC has caught up on the post-COVID backlog of cases and continues to intensify its efforts to address transfer pricing issues and ensure compliance.
The number of transfer pricing enquiry cases, including real-time interventions, has decreased slightly from 175 in 2021-22 to 153 in 2022-23. However, the average age of settled enquiries has increased to 38.9 months from 34 months, indicating a more in-depth analysis and expectation of quality from HMRC.
The number of APAs agreed during the year has fallen by a quarter to just 15, with the average time to reach agreement decreasing by over a year to just under four years. While the decrease in time to completion is welcome, if timelines cannot be shortened further, interest in APAs may continue to fall in the fast-moving trading conditions businesses increasingly face.
Similarly, applications for advance thin capitalisation agreements (ATCAs) remain at very low levels, with only five agreed during the year. This coincides with the introduction of the Corporate Interest Restriction (CIR) rules, which may result in interest deductions being restricted to a lower amount than would otherwise be permitted under the arm’s length principle.
The deterrent effect of the diverted profits tax (DPT) is becoming clearer: the net amount paid for the tax year 2022-23 was just GBP 40 million, down from GBP 198 million in 2021-22, but the continued increase in transfer pricing yield indicates that DPT is working.
HMRC activity with Profit Diversion Compliance Facility (PDCF) letters was minimal (only two were issued in 2022-23, compared to 30 in 2021-22), but this may mean it is more likely that there will be another burst of activity in 2024, not that HMRC is giving up on this useful enforcement tool. In fact, the report explains that this low number is due to HMRC focusing resources on the conclusion of cases within the facility, rather than issuing targeted letters, adding that HMRC are starting to issue further PDCF letters during the 2023-24 period.
Overall, HMRC’s focus remains on promoting tax compliance and addressing transfer pricing issues, with more in-depth analysis and higher quality compliance expected of taxpayers – we have been warned!
If you have any questions, please contact the author(s) or reach out to one of our Global Transfer Pricing professionals
Ken Almand
BDO in United Kingdom