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<p>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).</p><p> </p><p>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.</p><p> </p><p>This international collaboration has led to
the introduction of:</p><p> </p><ul><li>Hybrid mismatch rules that prevent multinationals
exploiting differences in the tax systems of different countries;</li><li>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</li><li>a Corporate Interest Restriction that protects
against companies using intra-group loans to shift profits overseas.</li></ul><p>
</p><p>The introduction of robust UK domestic rules has reinforced these multilateral
efforts.</p><p> </p><p>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.</p><p> </p><p>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.</p>
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