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Even though ‘TP Month’ at Claritas was in January – fear not, the TP team are here long term – and what better way to start the month than to report on the latest statistics on Transfer Pricing and Diverted Profits Tax from HMRC!?

On 27th January, HMRC released the statistics for the 2023-24 period showing that transfer pricing yield (this includes tax yield from enquiries, real-time interventions, advanced pricing agreements, advance thin cap agreements, and mutual agreement cases) up to £1.79 billion, an increase of 9.2% over the prior year, but still short of the bumper £2.16 billion in 2021-22.

The number of cases settled is slightly down from the prior year to 128, with a (very welcome) drop in the average age of settled enquiries – down from 38.9 months in 2022-23 (the highest since 2018-19) to 33.1 months.

HMRC has been on something of a recruiting drive recently, for me this was most evident in HMRC taking the time to respond to very many posts on LinkedIn reporting on the ‘deliberately poor phone service’ news articles (I can’t confirm HMRC responded to ‘all’, though it looked that way from the small slice of the platform visible to me). A good use of time? Possibly, but not in comparison with working the international cases: the 395 reported full-time-equivalent (“FTE”) staff working those cases averaged a yield of £4.5 million each. HMRC operates a ‘resource to risk’ policy – and the FTE count is largely unchanged from the prior period (2022-23: 397) which may suggest that HMRC feels they have enough specialists working international cases as it is, or they are struggling to recruit.

The Advanced Pricing Agreement (“APA”)  and Mutual Agreement Procedure (“MAP”) statistics have not been fully reconciled to the OECD tax certainty day tata (see our news article here) but broadly show that:

  • More APAs are being agreed, and taking slightly longer, than in the prior year, but ‘agreed’ (27) remains substantially lower than ‘applied’ (45). This has been the case for several years so absent withdrawal of applications the balance to be agreed will continue to grow. As has been the case since 2021-22, no applications were rejected at the expression of interest stage.
  • The time to resolve MAPs is very similar to the prior year (28.8 months versus 28.4 months last year) but fewer have been resolved (86 in 2023-24 versus 131 each in the two preceding years). This is the third year in a row that HMRC have reported resolving more cases than were submitted, which is good news to clear some of the backlog created in 2020-21, when 62 cases were resolved but 128 were admitted.

Most interesting to me were the Profit Diversion Compliance Facility (“PDCF”) figures and the ‘investigations into DPT (“Diverted Profits Ta”)’.

After a very quiet 2022-23 period, during which only two PDCF nudge letters were issued so as to allow HMRC to focus on closing the cases that were already running, 2023-24 saw a flurry of activity with 19 letters issued and 10 businesses registering. Very promising statistics around the average time to complete (21 months from registration meeting to decision) are cited and HMRC has noted that 98% of final proposals were accepted (perhaps not surprising given the process often involves a degree of iteration between the HMRC case team and the taxpayer in reaching those final proposals).

The total DPT take was down (£225m, including charging notices and additional tax payments, whether or not DPT, that originated as DPT investigations) versus prior year, but brings the total to £8.7 billion of additional yield since DPT was introduced in 2015-16 to 2023-24 (of which £4.5 billion is from ‘other’ taxes brought to light through a DPT investigation). The same statements concerning the ‘wider impact’ that DPT has had and the continuing work of HMRC with professional bodies, large firms and advisors in exploring ways to improve tax advice in the market and to discourage tax avoidance were included, with a slight tweak to replace the reference to the ‘Accelerated Routes for Long Running Transfer Pricing Enquiries’ initiative to a reference to the transfer pricing Guidelines for Compliance (for more details, see here).

The same ‘HMRC is litigating…’ statement was also included, but surprisingly, there was no teaser for the consultations promised under the Corporate Tax Roadmap. The Roadmap, referenced in Rachel Reeves’ first Autumn Budget Speech last year announced that there would be consultations concerning transfer pricing, permanent establishments and DPT. As yet, those consultations are not live, but we look forward to engaging with them when they are.

 


Don’t be another statistic! If you have questions about your transfer pricing or other tax matters – Claritas is here to help. If you would like to sign up to receive our newsletters, please click on the ‘subscribe to our newsletter’ icon on our Homepage. 

Claritas is one of the UK’s leading, full-service tax advisory and compliance practices. By combining our extensive practice and industry experience, we’re able to ensure you receive the very best tax advice.

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