Malta based company, using island to declare profits, to underpay tax, mentioned as example of UK’s effort to curb on tax underpayment by big multinationals
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UK authorities are stepping up investigations into the tax affairs of US multinationals, which account for a growing share of suspected underpayment by large businesses.
HM Revenue & Customs believes US-based companies may have underpaid £4.6bn in the 2017-18 tax year, up from £3.4bn the previous year and more than double the £1.8bn officials were querying in 2013-14.
The Financial Times reports that heightened scrutiny of multinationals is partly a response to a public backlash against tax avoidance, highlighted last month by Christine Lagarde, the IMF’s managing director, who called for a “fundamental rethink on international taxation”.
Jason Collins, a partner at the law firm Pinsent Masons, which obtained the country breakdown of the figures from HMRC through a freedom of information request, said that the “HMRC describes its estimates of potential tax underpayment as a “tool to guide inquiries”, showing where it considers the biggest risks to lie and where it is likely to focus its efforts. After investigation, the amount due is typically roughly half the initial figure. At any time, some two-thirds of large businesses are under inquiry. However, Mr Collins said HMRC was taking a “much more muscular approach” in enforcing existing rules.
The UK’s introduction of a “diverted profits tax” in 2015 directly raised a modest £388m in 2017-18, but he said it had had a big effect on companies’ behaviour because it had allowed officials to challenge and penalise arrangements where the chief motive was to minimise corporation tax payments.
He gave an example of an online company that had previously declared profits in Malta, purely because board members flew there for quarterly meetings to set strategy. That company had now conceded that it should declare much more income in the UK.
