More than £5bn in extra tax has been secured from multinationals, reveals HMRC, thanks to reforms introduced in 2015 to tackle profit diversion.
The Diverted Profits Tax (DPT) has revolutionised the government’s approach to countering arrangements intentionally used by some multinational corporations to shift their profits abroad and avoid paying tax they rightly owe in the UK.
DPT was introduced specifically to change behaviour – only being charged where businesses aren’t paying the right tax in other areas, principally Corporation Tax. Companies risk being charged a higher rate of tax (25%) upfront if HMRC believes the tax applies.
As a result, many businesses are choosing to cooperate with HMRC investigations and to change their behaviour and pay Corporation Tax on their UK activities rather than the higher rate of DPT.
Figures published today show that since DPT was introduced in 2015 it has helped HMRC to secure a total of £5bn by:
- settling over 60 investigations for additional Corporation Tax of over £2.2bn
- securing almost £2bn VAT from businesses restructuring their operations as a result of DPT investigations or the introduction of DPT
- collecting £369m from DPT charging notices (issued where HMRC believes businesses aren’t paying the right tax in other areas)
So far in 2019 to 2020, HMRC has secured another £480m through DPT investigations, bringing the grand total to £5bn. HMRC is currently carrying out around 100 investigations into diverted profits arrangements by multinationals.
HMRC has seen an increasing number of businesses changing their behaviour, structures and policies. These changes include increases in both Corporation Tax and VAT as the amount of DPT receipts begin to fall away.
2018 to 2019 saw business restructurings that will increase VAT billed through UK companies by around £1.8bn. Also in 2018 to 2019 more than half a billion pounds was secured in additional Corporation Tax from diverted profits investigations.
HMRC’s Director of Large Business, Jo Wakeman, said: “I’m pleased to say we’re making progress in tackling those who think it’s ok to shift their profits offshore and avoid paying tax in the UK on their economic activities here. The £5bn secured so far since the Diverted Profits Tax was introduced shows that it’s helping to bring in additional money for the UK’s vital public services.”