HMRC is launching the Profit Diversion Compliance Facility to encourage firms to make voluntary disclosures about mistakes or failures in respect of profits diverted from the UK.
It has also published online guidance which explains: how to use the profit diversion compliance facility; how to compile and what should be included in a disclosure report; and HMRC’s indicators of profit diversion risk.
Dawn Register, a tax dispute resolution partner at BDO, explained that HMRC expects “most companies using the facility to disclose additional corporation tax as a result of their transfer pricing policies.”
She understands that “late payment interest and financial penalties will be applied. There is no amnesty element to this facility. Full taxes for all years, including retrospectively, will be expected to be paid.”
HMRC focusing on international business operating in low tax or no tax jurisdictions is not surprising as it is an ongoing focus for the UK Treasury, the EU and the OECD. It is also likely to garner public support, with many people keen to see large businesses pay their ‘fair share of tax’ in the UK.
Ms Register continued: “We expect HMRC to issue so-called ‘nudge’ letters to businesses it considers should either use the facility.
“Businesses will need to carefully assess whether or not the facility is in fact the best way to approach HMRC. It is not the only process for making a voluntary disclosure to HMRC. Given the risk of a more serious investigation, any affected business would be wise to seek expert tax advice prior to making any approach to HMRC.”
Ms Register concluded: “We understand HMRC has already undertaken a risk assessment process to identify approximately 2,000 businesses which it considers may be affected and it would like to hear from. HMRC is dedicating significant resource looking at these areas, primarily aimed at larger groups of companies. Ignoring a letter from HMRC on this issue is clearly not advisable.”
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