HMRC targets US businesses for £4.6bn in underpaid tax

US-based multinational businesses represent 17 per cent of the total amount of tax that HMRC is targeting last year, said international law firm Pinsent Masons.

According to its analysis, Swiss-based businesses represented the second highest at 6 per cent of underpaid tax, followed by Ireland (3 per cent) and France (2 per cent). 

The diverted profits tax (DPT), set at 25 per cent, is designed to deter activities that divert profits away from the UK so that they are not subject to corporation tax. 

DPT raised £388 million in 2017-18 – more than the £360 million forecasted when the tax was introduced.

"HMRC is under enormous pressure to collect extra revenue and that is leading to more pressure on businesses both from domestic and foreign authorities," Jason Collins, partner at Pinsent Masons, said. 

According to Mr Collins, past experience is that HMRC will only collect half the amount it initially sets out.

"It is not just multinational businesses on HMRC’s radar – the affairs of all large businesses are under growing scrutiny. The amount of tax HMRC thinks was underpaid last year was a record high and it will be looking to act on this," he added.

Pinsent Masons said HMRC has opened a new 'profit diversion' compliance facility that gives businesses the opportunity to restructure cross-border arrangements that divert profits overseas and pay back any tax that they owe.

If a business makes a disclosure then they will face lower penalties than they otherwise would have and will not be subject to investigation. Penalties could be up to 30 per cent of the tax that HMRC considers is owed and up to 100 per cent in cases of fraud.

Pinsent Masons added that HMRC already has a 'hit list' of businesses it suspects are diverting profits and intends to issue 'nudge letters' to those it has identified as non-compliant.

"Although making a disclosure under HMRC’s facility can be time consuming for businesses as it means carrying out an intensive investigation and preparing a detailed report, this is not on the same scale as the cost and disruption caused by a full-blown HMRC investigation," said Mr Collins. 

"HMRC is already putting a huge amount of resource into counteracting profit diversion. No business operating cross-border to a significant extent can afford to be complacent."

As part of its efforts to increase the tax paid by technology groups, the UK government has proposed a new digital services tax (DST), which will come into force in April 2020. DST is a 2 per cent tax on the revenues of businesses that are considered to derive significant value from the participation of their users. It will catch search engines, social media platforms and online marketplaces.