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UK tax investigations taking longer to settle

HMRC’s tax investigations into large businesses are now taking more than three and a half years to settle, reaching a record 43 months in 2018/19, up 10% from 39 months in 2017/18, according to a report by law firm Pinsent Masons.

Pinsent Masons partner Jason Collins said: “Businesses need certainty to plan efficiently – putting them in legal limbo for years on end undermines that certainty.”

HMRC’s strategy for dealing with tax investigations can work against reaching a quick resolution of an inquiry. The ‘Litigation and Settlement Strategy’ (LSS), which was designed to resolve tax disputes with a consistent framework, makes it difficult for individual HMRC teams to settle disputes for less than the full amount of tax initially identified by HMRC as potentially underpaid.

Collins said: “HMRC’s inflexible approach to tax avoidance is driving delays as it frequently aims to win every point against the business. This can make it difficult to settle even the simplest disputes.  It can lead HMRC to deploy its resources inefficiently.”

Pinsent Masons says, one reason for the length in time taken to resolve disputes could be that HMRC is increasingly pursuing complex tax investigations with a cross-border element, which typically take longer to settle.

Collins added: “HMRC’s latest disclosure facility shows that HMRC is clamping down on what it views as businesses diverting profits from the UK though aggressive, out of date or erroneous transfer pricing.  It gives those businesses a window to fix the past in line with HMRC's thinking without the need for an HMRC investigation. In order to avoid being tied up for years in a dispute with HMRC many businesses may opt to take this route.

"HMRC is devoting significant resource to investigating large businesses it suspects of diverting profits from the UK and already has a number of businesses in its sights. All cross-border businesses need to check their transfer pricing policies reflect what actually happens on the ground."

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