Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, what steps the Government is taking to prevent multinational companies using the transfer pricing method to avoid paying taxes.

The transfer pricing rules set out how transactions between connected parties are priced for tax purposes. In common with most countries the UK rules are based on the internationally recognized arm’s length principle. HM Revenue & Customs (HMRC) challenges arrangements that do not allocate the right amount of profits to the UK.

The Government has led the way in taking action to ensure multinational companies pay their fair share of taxes. We played a critical role in establishing the OECD project to strengthen international tax standards to help counter base erosion and profit shifting.

The Government has gone further by taking a lead in the implementation of measures to address that profit shifting, for example, introducing the Diverted Profits Tax (DPT). This measure encourages businesses that are using contrived arrangements to minimise their tax liabilities, to change those behaviours or face paying tax at a higher rate.

HMRC deploys specialist staff to deal with international tax risks, including transfer pricing and diversion of profits. These experts work with other industry experts and tax specialists to tackle all international tax issues that represent substantial risk of tax loss to the Exchequer. HMRC also works with other tax authorities, sharing information and expertise, to identify risk and challenge arrangements. The recent introduction of Country by Country reporting will also increase the information available to HMRC and assist their risk assessment processes to identify these tax risks.