US-based companies could be faced with an additional £4.6bn in UK tax bills for the year ending 31 March 2018 as HMRC's clampdown on companies diverting profits overseas ramps up.
The tax gap was up 35% from £3.4bn in the previous year, according to research from Pinsent Masons, which calculates US-based multinationals account for 17% of the total amount of tax that HMRC was targeting last year, with a total of £27.8bn in underpayments by large corporates.
The most recent figures, obtained after a freedom of information request by law firm Pinsent Masons, found that the tax under consideration (TUC) for US-based companies has more than doubled since 2013/14.
The wide application of profit diversion initiatives shows that businesses across all sectors would be wise to review their cross-border arrangements"
TUC, the maximum potential additional tax liability across all HMRC inquiries before a full investigation, for 2017/18 totalled £27.8bn - 17% of which could be from US-based companies.
The total TUC has increased by 14% from the year ended 31 March 2017.
"They have invested a lot more in challenging these large companies," said Jason Collins, a partner at the law firm Pinsent Masons
According to its analysis, Swiss-based businesses represented the second highest source of underpaid tax at 6%, followed by Ireland (3%) and France (2%).
In 2015 HMRC introduced its Diverted Profits Tax (DPT), aimed at deterring large multinationals from diverting profits away from the UK to avoid paying corporation tax. The DPT tax rate is 25% compared to the current 19% corporation tax rate.
In recent years, Amazon, Starbucks, Google, eBay and most recently Netflix have come under scrutiny over accusations of moving profits to lower tax jurisdictions to reduce their tax liability.
The diverted profits tax (DPT), set at 25%, is designed as an incentive to groups to adjust their transfer pricing, as paying more corporation tax at the lower rate of 19% can eliminate a DPT liability.
DPT raised £388m in 2017-18, against an estimate of £360m forecasted when the tax was introduced.
Collins added that with HMRC under "enormous pressure" to generate greater tax revenue, both foreign and domestic businesses are under more scrutiny.
"Often the large amount HMRC initially believes has been underpaid boils down to basic misunderstandings with businesses and past experience is that HMRC will only collect half the amount it initially sets out," he added.
"The wide application of profit diversion initiatives shows that businesses across all sectors would be wise to review their cross-border arrangements," Collins said.
"HMRC expects all businesses operating cross-border to have revisited their transfer pricing policies to check they accord with what is actually happening in practice."
Transfer pricing accounted for 22% of the total TUC for 2017/18 - the highest proportion of all the "high risk areas" identified by HMRC, another example of which included output tax under-declared, in which VAT charged on sales is under-declared to HMRC by a businesses.
