HMRC sees increased tax avoidance by big business

LONDON Mon Jan 21, 2013 7:04am GMT

Branded packaging is seen in Starbucks' Vigo Street branch in Mayfair, central London January 11, 2013. REUTERS/Stefan Wermuth

Branded packaging is seen in Starbucks' Vigo Street branch in Mayfair, central London January 11, 2013.

Credit: Reuters/Stefan Wermuth

LONDON (Reuters) - The UK tax authority said the amount of tax that big companies may have underpaid by using artificial intercompany transactions to inappropriately reduce taxable profits has risen 48 percent last year.

The figure comes as public anger grows over tax avoidance by big businesses and British MPs investigate possible remedies.

Her Majesty's Revenue and Customs (HMRC) said the amount of 'tax under consideration' from large businesses, in relation to transfer pricing and thin capitalisation inquiries, was 1 billion pounds at 31 July 2012, up from 680 million at the end of March 2011.

The data was released in response to a Freedom of Information Act request from lawyers Pinsent Masons.

Heather Self, a partner with the firm, said the figures showed HMRC was getting tougher with big companies.

However, a spokesman for the tax authority said there had been no change in approach.

'Tax under consideration' is an estimate of the sum HMRC thinks may be owed by a group of companies. The data HMRC published relates to the companies covered by its Large Business Service, which focuses on the 800 biggest companies in the country.

The tax authority said that after investigation of individual cases, the amount it usually ends up determining to be due is around half the initial estimate.

This suggests the amount of tax which companies had underpaid by bending the transfer pricing and thin capitalisation rules was 500 million pounds as of July last year, still up 48 percent on March 2011.

Tax campaigners say HMRC consistently underestimates how much tax multinationals avoid paying through a mix of legal and legally dubious measures.

Transfer pricing is the mechanism by which multinationals set the prices which different subsidiaries charge each other for products and services as they pass along the supply chain.

UK politicians have accused companies such as Starbucks and Google of manipulating transfer prices to shift profits into low tax jurisdictions.

Thin capitalization refers to the way in which companies minimise taxable profits in a trading unit by having it borrow large sums of money, often at high interest rates, from affiliates based in tax havens.

Starbucks reduces taxable profits at its European subsidiaries by piling debt onto the units, despite the fact the company overall is actually cash rich.

Starbucks and Google said they comply with UK tax law.

(Reporting by Tom Bergin; Editing by Louise Heavens)

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