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Offshore Industry: Tax Havens

Question for Treasury

UIN HL14691, tabled on 12 April 2021

To ask Her Majesty's Government, further to the reports of the financial trading of oil and gas companies being routed through tax havens, what assessment they have made of the loss of tax revenue.

Answered on

26 April 2021

HMRC estimate that the tax gap across Large Businesses – which is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid by the UK’s largest businesses across all sectors – has continued to fall over the last five years and was under 1% for 2018-19 (reported by the NAO in ‘Tackling the Tax Gap’ in July 2020).

The UK has led international efforts to tackle avoidance by all multinationals through the OECD Base Erosion and Profit Shifting (“BEPS”) Project which looks at aggressive tax planning strategies that exploit tax rules to artificially shift profits to low tax jurisdictions where there is little or no economic activity.

This international collaboration has led to the introduction of:

  • Hybrid mismatch rules that prevent multinationals exploiting differences in the tax systems of different countries;
  • a requirement for UK-headed large businesses to provide HMRC with a country-by-country report, detailing their global profits, tax and assets to ensure they are paying the correct tax on all their UK activity; and
  • a Corporate Interest Restriction that protects against companies using intra-group loans to shift profits overseas.

The introduction of robust UK domestic rules has reinforced these multilateral efforts.

In April 2015, the UK government introduced the Diverted Profits Tax (‘DPT’). DPT was designed to counter contrived arrangements used by multinational corporations to shift their profits offshore and avoid paying tax in the UK on their economic activities here. The UK secured £6 billion in the five years following its introduction.

In January 2019, HMRC launched a new Profit Diversion Compliance Facility (‘PDCF’) to encourage businesses to stop diverting profits and pay what is due. About two-thirds of the large businesses targeted so far have decided to use the facility to bring their tax affairs up to date quickly and efficiently, enabling HMRC to focus even more resources on investigating businesses which continue to divert profits.

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