Caterpillar & HMRC: Making Tracks on Tax

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Caterpillar & HMRC: Making tracks on tax

Introduction

In years past, even the most organised souls would only now be sitting down to simply consider the gifts which they might buy for their nearest and dearest.

Thanks to the advent of e-commerce, however, and omnipresent adverts alerting us to discounts covering the US-inspired ‘Black Friday’ and ‘Cyber Monday’ weekend, a large proportion of consumers have already finished shopping for the contents of festive stockings the world over.

One of the key players in the seasonal shopping splurge is, of course, the online marketplace Amazon.

Despite its ventures into space exploration and media programming, a wealth of news headlines over the last 12 months have once again focused on its tax affairs.

For example, The Guardian has reported that a study by one tax pressure group accuses Amazon of being the “worst offender” among a group of technology firms said to have avoided some £75 billion in tax over the last decade.

The newspaper noted that research conducted by Fair Tax Mark has concluded that, together with Facebook, Google, Netflix, Apple and Microsoft, Amazon minimised tax payments by routing its revenues though “shifting revenue and profits through tax havens or low-tax countries”.

Base Erosion & Profit-Shifting

It’s the kind of behaviour (known as ‘Base Erosion and Profit-Shifting’ or BEPS, for short) which prompted the Organisation for Economic Co-operation and Development (OECD) to publish new proposals in October to ensure that major multi-national firms pay tax “wherever they have significant consumer-facing activities”.

Those proposals will be the subject of a public consultation next week.

Amazon, though, is not the sole target for tax authorities investigating such shenanigans.

Much closer to home, for instance, HMRC has been vigorous in its pursuit of companies trying to route profits generated in the UK to lower tax territories in an effort to reduce their liabilities here.

Some readers of this ‘blog will recall how I spoke with The Times last year regarding Diageo’s decision to pay an extra £190 million in Corporation Tax to avoid earning itself a reputation as a tax avoid-er after having its finances scrutinised by the Revenue.

Hungry Caterpillar?

Now, one of the world’s leading engineering firms has revealed that it too has come in for similar attention.

The 2018 full-year accounts filed at Companies House by the UK division of Caterpillar within the last week have disclosed that it handed over just short of £37.5 million after its “transfer pricing agreements with fellow group companies” between 2010 and 2017 were inspected by HMRC .

Caterpillar expects to cough up a further £5.5 million in interest payments for the period in question.

Such sums underline why the Revenue and its counterparts across the globe are so keen to watch the tax affairs of corporate behemoths.

Diversion

Regardless of how the vast wealth accumulated by high-tech firms has made them easy targets for some sections of the media, HMRC is well aware that it’s not only digital enterprises which merit attention for ‘profit shifting’.

That’s one reason why, in January this year, the Revenue established something called the Profit Diversion Compliance Facility.

Although the arrangement sounds rather dry, the potential penalties – including fines and even criminal sanctions – are most definitely not.

Caterpillar & HMRC – Conclusion

In the brave new world of tax and in the spirit of trying to close its fabled ‘tax gap, HMRC does not now confine its energies to these shores.

For those businesses caught in the firing line, the issue of shifted profits is no mere diversion any more.

If you have any queries regarding this article or tax matters in general then please do not hesitate to get in touch.

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