Multinationals avoided paying UK government £5.8bn in tax

Multinational companies avoided paying the UK government £5.8bn in corporation tax last year by keeping their accounts in countries with low-tax regimes.

The figure is a 51% rise on the previous year’s figure of £3.8bn, according to figures released by law firm Pinsent Masons under a Freedom of Information Act request.

The news follows the launch of the so-called ‘Google tax’ by former Chancellor George Osborne to crack down on US tech giants trying to shift corporate profits to low-tax countries.

Diverted Profits Tax

The new Diverted Profits Tax raised £281m in 2016-17, nine times more than the previous year, but the government hopes to raise the take to £2bn.

The practice of moving corporate profits around – known as transfer pricing – now represents nearly a quarter (23%) of the total suspected amount of underpaid tax by large businesses last year, according to Pinsent Masons. The estimated figure of £25bn is up 17% on last year (£21.8bn).

Ian Hyde of Pinsent Masons says HMRC is cracking down on multinational corporations Photo: Pinsent Masons

Ian Hyde, partner at Pinsent Masons, said: “The tax affairs of the UK’s largest businesses are a top priority for HMRC, particularly the use of cross-border structures, including the possible manipulation of pricing methods.

“HMRC has been investing in transfer pricing specialists and this is clearly reflected in the figures.

“Diverted Profits Tax is being applied much more widely than was anticipated when the rules were first introduced.”

Tax disputes

However he warned the increase in transfer pricing investigations by HMRC was likely to lead to an increase in international tax disputes which were notoriously complex and took a long time to resolve.

The EU recently launched a crackdown on low-tax deals, with Luxembourg and Ireland under fire for deals with Amazon and Apple, ordering Apple to pay $13bn of tax it claimed had been avoided.

Some countries have gone even further in the battle against transfer pricing. However, a bid by Poland to force Polbud into liquidation for moving its registered office from Poland to Luxembourg was ruled unlawful by the European Court of Justice as it constituted a restriction on freedom of establishment.