HMRC Tax Investigations | Multinational Companies
HMRC, as a matter of course, investigates the underpayment of tax by multinational corporations with unpaid tax at £11.5bn, representing an increase of 6.9% from the 2021/22 tax year.
Of that figure, it is believed that 48.6% is owed by US companies.
Where HMRC suspects tax has been underpaid, it has the power to issue Tax Assessments and levy penalties against companies and their officers.
Hamraj Kang of KANGS Solicitors briefly comments upon HMRC steps to reduce avoidance of tax due to HM Treasury.
KANGS has been representing corporate and individual clients facing HMRC tax investigations for many years.
Should your company be approached by HMRC claiming, for instance, that tax has been underpaid, then please do not hesitate to contact the Team at KANGS who will be delighted to assist.
For an initial, no-obligation discussion please do not hesitate to call our Team at any of our offices detailed below:
- 020 7936 6396 London
- 0121 449 9888 Birmingham
- 0161 817 5020 Manchester
Nature of HMRC Tax Avoidance Activity | KANGS Tax Solicitors
Past HMRC Settlements
As a matter of course, HMRC pursues multinational companies for payment of unpaid taxes, with notable settlements including:
- October 2023: Microsoft paid £136m to settle the claim arising from activity involving third countries to reduce its tax liability.
- November 2020: Netflix agreed to re-arrange the manner in which it recorded its earnings from UK subscribers away from its Dutch business for the benefit of the UK Treasury.
- In 2016, Google settled a tax bill for £130m to clear unpaid taxes.
Profit rerouting
Multinational corporations seek to reduce tax liability by rerouting profits out of the countries in which their operations produce taxable revenue through countries which operate lower levels of tax liability.
Tactics employed include, for instance, shifting the base where the greater profit is earned to a lower tax country by artificially buying goods at an inflated price from a subsidiary company based in that country. This leaves a much lesser profit earned and exposed in the higher level tax environment, where, in reality, the true profit is actually created.
HMRC is actively seeking to challenge such activity by introducing new taxes targeting those companies moving profits abroad to ensure that profits generated in the UK are properly taxed for the benefit of HM Treasury.
At one stage the UK Government had considered implementing specific taxes aimed at specific sectors which avoided UK taxes. The US Government considered such a policy to be discriminatory towards US companies, and the policy was reversed in the face of retaliatory tariffs from the US Government on UK goods.
The Digital Services Tax, introduced in 2020, is another measure designed to combat the underpayment of UK tax by multinational corporations.
It applies a 2% tax on the revenues of search engines, social media services and online marketplaces generated by digital companies where more than £25m of revenue is generated from UK users.
From inception of the tax to 2022, £947m has been generated for HMRC
The Digital Services Tax is planned as a temporary measure whilst international agreements are drawn up by the Organisation for Economic Cooperation and Development (‘the OECD’).
One of the rules the OECD expects to introduce will reduce profit rerouting to a mandatory minimum 15% corporation tax in all countries although countries would be able to set their own corporation taxes higher.
The intent is to significantly disincentivise multinational corporations from moving profits to areas of lower tax as the minimum 15% tax liability will be unavoidable.
This proposal of a mandatory minimum of 15% is considered unlikely to be wholly effective whilst the UK corporation tax rate stands at 25%.
Substantial savings will still be available to companies turning over hundreds of millions of pounds per year which move their profits to countries with a 15% rate.
Transparency
Another suggestion to reduce the number of multinational corporations underpaying tax includes new rules which would create greater transparency. For example, if multinational corporations were required to publish the value of sales made in each country. However, there are currently no plans to introduce this as a formal measure.
How Can We Help? | KANGS Corporate Tax Dispute Solicitors
It is essential that businesses of every nature, whether corporate or otherwise, remain constantly aware of the extent to which their trading activities are required to comply with all regulations imposed by Tax legislation and HMRC.
This need to be diligent is imperative, whatever the size and nature of the trade involved and whether or not it involves an international element.
HMRC frequently imposes strict time limits with which to respond to its correspondence and formal Notices. Accordingly, it is essential that professional advice and guidance is sought immediately.
Our Team is highly experienced challenging HMRC assessments and decisions of every nature and conducting negotiations with the view of achieving an acceptable resolution to both parties.
Please contact us with any enquiries as follows:
Email: info@kangssolicitors.co.uk
Telephone: 03330 370 4333
