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Transfer Pricing enquiries - In 2022/23 HMRC generated £1.6 billion in revenue through its enquiries into transfer pricing risks - an increase of around £150 million on the previous year. This clearly demonstrates that transfer pricing remains a key area of focus for HMRC, which mirrors our experience of what we’re seeing with clients.

  • 153 TP enquiry cases were settled in 2022/23 - a slight decrease from the previous year but an increase on years prior. This equates to an average yield of just over £1 million per TP case closed in 2022/23.
  • The average time to settle  TP enquiries tipped over 3 years - an increase on the previous year and maybe highlighting the complexity of the matters being taken up for enquiry.

Diverted Profits Tax - DPT generated a net £40m from charging notices but, more importantly, £253m in additional tax (primarily corporation tax (CT)) from settled DPT enquiries. HMRC has confirmed in its response to a consultation that it will remove DPT’s status as a separate tax, but will retain the framework within the Corporation Tax regime. The retention of the rules, albeit not as a standalone tax, shows that HMRC considers DPT to be an important tool to counter profit diversion. 

Advance Pricing Agreements 

15 APAs were concluded in 22/23, down from 20 concluded during 21/22. The average time taken to agree to those APAs decreased from 58 months (21/22) to 46 months. Interestingly, new applications increased from 40 in 21/22 to 45 in 22/23, showing a continued upward trend. This is an indicator that businesses continue to see value in tax certainty.

Mutual Agreement Procedure 

The MAP statistics are broadly in line with the previous year in terms of numbers resolved (131) and admitted (99). The average time taken to conclude (28 months) is an increase on the previous year, but in line with years prior to that. 

Profit Diversion Compliance Facility

Since the introduction of the PDCF in 2019, HMRC has issued 167 ‘nudge’ letters inviting taxpayers to join the facility - of which 121 decided to join. HMRC has confirmed that they are investigating those who do not register for the facility, which aligns with our experience.  

The number of new nudge letters significantly decreased in 22/23 to only 2. HMRC has commented that it “focussed resources on the progression and conclusion of cases within the facility, rather than issuing further targeted letters. HMRC are starting to issue further PDCF letters during 2023 to 2024.”

Across the years the programme has been running, cases have taken an average of 20 months from the registration meeting to receiving a decision from HMRC and 97% have had final proposals accepted. Over £732 million additional revenue has been secured.

Our Takeaways

Given the very significant yield resulting from TP enquiries, HMRC is likely to continue to deploy significant resources into TP and international tax risk. It is therefore no surprise that we’re currently seeing an increase in activity from HMRC in this space. 

APAs and MAPs continue to provide effective mechanisms for increasing cross border tax certainty.

HMRC has said that it intends to increase the number of PDCF nudge letters it issues. 

For further information on this article, please contact Sara Harris or your usual PwC contact.