Tax avoidance on the increase
Freedom of information request shows 48% rise
Reuters today reported that her Majesty's Revenue and Customs (HMRC) have seen a 48% rise in the amount of tax that big companies may have underpaid by using well known tax avoidance methods.
In response to a Freedom of Information Act request the HMRC said the amount of 'tax under consideration' from large businesses, in relation to transfer pricing* and thin capitalisation inquiries*, was £1 billion at 31 July 2012, up from £680 million at the end of March 2011.
'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 finds to be outstanding is half the initial estimate and that there had been no change of policy in chasing those involved in tax avoidance schemes.
On his blog tax campaigner Richard Murphy described the HMRC statement as "disappointing".
"What’s wrong with saying HMRC is tackling transfer pricing abuse? It exists, after all and it’s exactly what the Public Accounts Committee asked that HMRC do."
He added. "What is surprising is that the sum under scrutiny is so small. International trade into and out of the UK amounts to hundreds of billions a year. 60% of that is likely to be subject to transfer pricing."
Ethical Consumer are currently calling a boycott of Amazon over the company's tax avoidance.
*Transfer pricing happens whenever two related companies trade with each other e.g. when a US-based subidiary of Coca-Cola buys something from a French-based subsidiary of Coca-Cola.
**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.