HMRC has said that it has issued a further batch of ‘nudge’ letters to certain businesses which it considered had some indicators of profit-diversion risk, according to a client briefing by accountancy firm EY. The letters ask such businesses to consider registering for the profit diversion compliance facility and to make a full disclosure of any outstanding UK tax liabilities relating to an artificial reduction in UK profits. Businesses receiving such a letter have 90 days to decide whether to register or risk HMRC opening an investigation into profit diversion. The latest letters are said not to focus on any particular business sector and target both large and mid-sized businesses. Covid-19 is said not have to have materially impacted HMRC’s recourse on ongoing PDCF cases.
EY states: ‘Where businesses have registered with PDCF, they have, in the majority of cases, proposed a transfer pricing adjustment to resolve matters, and settlements are being reached with HMRC through PDCF. However, where agreement cannot be reached, HMRC will consider opening an enquiry. Investigations have been launched into many of those businesses that previously received nudge letters, but did not register for the facility, and where considered appropriate these are being led by HMRC's Fraud Investigation Service (FIS).
‘The main focus of most PDCF disclosures to date has been transfer pricing but some disclosures received by the PDCF have related to permanent establishment profit attribution, corporate residence and CFCs,’ EY added. ‘Other taxes, including VAT, have also been addressed in some cases. HMRC anticipate that the offshore receipts in respect of intangible property (ORIP) rules will become relevant to discussions arising from the latest waves of nudge letters.’
HMRC has said that it has issued a further batch of ‘nudge’ letters to certain businesses which it considered had some indicators of profit-diversion risk, according to a client briefing by accountancy firm EY. The letters ask such businesses to consider registering for the profit diversion compliance facility and to make a full disclosure of any outstanding UK tax liabilities relating to an artificial reduction in UK profits. Businesses receiving such a letter have 90 days to decide whether to register or risk HMRC opening an investigation into profit diversion. The latest letters are said not to focus on any particular business sector and target both large and mid-sized businesses. Covid-19 is said not have to have materially impacted HMRC’s recourse on ongoing PDCF cases.
EY states: ‘Where businesses have registered with PDCF, they have, in the majority of cases, proposed a transfer pricing adjustment to resolve matters, and settlements are being reached with HMRC through PDCF. However, where agreement cannot be reached, HMRC will consider opening an enquiry. Investigations have been launched into many of those businesses that previously received nudge letters, but did not register for the facility, and where considered appropriate these are being led by HMRC's Fraud Investigation Service (FIS).
‘The main focus of most PDCF disclosures to date has been transfer pricing but some disclosures received by the PDCF have related to permanent establishment profit attribution, corporate residence and CFCs,’ EY added. ‘Other taxes, including VAT, have also been addressed in some cases. HMRC anticipate that the offshore receipts in respect of intangible property (ORIP) rules will become relevant to discussions arising from the latest waves of nudge letters.’
