HMRC sees risk in changing corporate avoidance rules

LONDON Wed May 8, 2013 6:56pm BST

The financial district of Canary Wharf is seen in the background in this aerial view of the Olympic Stadium at the London 2012 Olympic Games, east London August 3, 2012. REUTERS/Jeff J Mitchell/Pool

The financial district of Canary Wharf is seen in the background in this aerial view of the Olympic Stadium at the London 2012 Olympic Games, east London August 3, 2012.

Credit: Reuters/Jeff J Mitchell/Pool

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LONDON (Reuters) - Her Majesty's Revenue & Customs (HMRC) has said international tax rules currently under review for failing to tackle tax avoidance can be of benefit to Britain and there are risks in changing them.

The HMRC says in a news briefing document the rules on transfer pricing - the method of pricing transactions between affiliates of a multinational group - allow UK groups to receive income from their overseas affiliates without tax being deducted at source. Such income can then be subject to UK tax.

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Some tax campaigners and advisors have blamed the transfer pricing rules for HMRC's inability to stop multinationals from shifting profits into tax havens, although some UK lawmakers have also said a lax approach to tackling the problem, on the part of HMRC, is also to blame.

"HMRC has now issued a ‘briefing' that supposedly sets out its approach to multinational groups and the transfer pricing rules," Kevin Phillips, International Tax Partner at Baker Tilly said in a note to clients.

"In fact, the document reads far more like a defence of the current rules and HMRC's record in this area," he added.

A spokesman for HMRC said the document was intended to highlight the risks of making changes to the transfer pricing rules but denied it was intended as a defence of HMRC's record.

The Organization for Economic Co-operation and Development (OECD), which advises rich nations on tax policy, said in February that multinationals were increasingly using the transfer pricing rules to shift profits into tax havens.

Britain, Germany and other big nations have asked the OECD to examine possible changes to address the problem.

(Editing by Greg Mahlich)

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