Insights from HMRC’s Transfer Pricing and Diverted Profits Tax statistics

2023 to 2024

At the end of January 2025, HMRC published their “Transfer Pricing and Diverted Profits Tax statistics 2023 to 2024”. Below we have summarised the key takeaways from the statistics.

Enquiries

Transfer pricing yield has increased for the third year running, totalling £1,786m for 23/24, despite the number of enquiries concluded in that period being down 16% on the prior year. This shows HMRC continue to focus on the cases which present the highest risk of loss of tax.

The average time to settle a transfer pricing enquiry still exceeds 30 months, highlighting a couple of points -that it is better to devote time/resource to getting it right first time, than to adopt a filing position which HMRC perceive as high risk, and having to defend it later on.

It also illustrates the benefit of having tax investigation insurance; although this won’t cover any additional tax due, or compensate for lost management time, it will generally cover the cost of advisors fees in assisting with the matter and liaising with HMRC on the taxpayer’s behalf.

Advance agreements

HMRC continue to offer taxpayers the opportunity to agree pricing in advance – by way of an Advance Pricing Agreement (APA), or an Advance Thin Capitalisation Agreement (ATCA) for financing arrangements between related parties. Advance agreements must be disclosed as part of the Master File/local file for the largest taxpayers.

The number of APAs agreed in 23/24 (27) was almost double the figure for 22/23, which was the same for ATCAs (10 vs 5). ATCA applications continue to be relatively rare following the introduction of the corporate interest restriction rules, which seek to limit interest deductions by reference to a fairly mechanical calculation, based on Organisation for Economic Cooperation and Development (OECD) principles.

Unilateral APAs are considered less beneficial than bilateral or multilateral APAs given there is no obligation on the counterparty territory to accept them; however, bilateral and multilateral APAs naturally tend to take longer to negotiate. To this end, the average period of negotiation for APAs agreed in 23/24 was 53 months.

Mutual Agreement Procedure (MAP)

Most double taxation agreements to which the UK is party include a MAP article; this allows tax administrations to resolve cases of double taxation (including relating to transfer pricing) by consultation and mutual agreement. MAP cases resolved in 23/24 were down 30% on 22/23, despite taking the same average amount of time to resolve (just under 30 months). However, the number of MAP cases being admitted also declined slightly.

However, it is encouraging that 90% of the transfer pricing MAP cases resolved resulted in full elimination of double taxation.

Price Bailey has a team of international tax specialists who have considerable experience with transfer pricing, and would be happy to discuss any queries you may have.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.