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By Ben Stupples
Big companies are facing wider investigations through the U.K. government’s “Google tax” inquiries, stoking concern about the additional impact of the controversial penalty.
U.S. multinationals Cooper Companies and Netgear are both the focus of wider U.K. probes on their transfer pricing that originate with diverted profits tax inquiries.
In its Aug. 4 half-year results, WiFi product-maker Netgear Inc. said Her Majesty’s Revenue and Customs, the U.K.’s tax authority, has expanded its diverted profits tax probe to include the San Jose, Calif.-based company’s overall transfer pricing from 2014 to end of 2016.
The Cooper Companies Inc., a manufacturer of contact lenses and women-focused health care products, said in a Sept. 1 quarterly filing that HMRC has widened its probe to include the Pleasanton, Calif.-based company’s transfer pricing during the 2015 financial year.
“This does resonate with what we’re seeing and hearing,” Joel Cooper, co-head of international transfer pricing at global law firm DLA Piper, told Bloomberg BNA on the wider probes.
The extended process “creates overhanging uncertainty around a company’s position,” he added. “U.S. businesses have to disclose more on income tax-related risks, so the uncertainty can be an accounting expense as well, which can hit things like a company’s earnings per share.”
Relating to inter-company transactions, HMRC’s wider diverted profits tax probes follow statistics showing how the tax authority is spending more time in its transfer pricing inquires.
In the 2017 financial year, the average timespan of HMRC’s unresolved transfer pricing inquiries was two years and three months, rising by 13.3 percent from the previous 12 months, according to official data published Sept. 13. In the same period, the average timeframe of inquiries that HMRC resolved during the financial year stretched to almost two years and five months, an increase of 4.3 percent from the previous year.
The increase in time “is causing a lot of frustration among various clients,” Nigel Dolman, a senior economist and transfer pricing specialist at global law firm Baker & McKenzie, told Bloomberg BNA. HMRC is using the penalty as “strong leverage” to collect extra tax, he added.
The U.K. introduced the diverted profits tax in 2015 amid concern that Google parent Alphabet Inc. and other global tech companies were engaging in aggressive tax planning to shift their profits to offshore havens. The measure sets a 25 percent levy—higher than the country’s current corporate tax rate of 19 percent—on any profits HMRC deems to have been moved improperly from the U.K.
At the time, the DPT sparked controversy as the U.K. took individual action amid the Organization for Economic Cooperation and Development’s project to rewrite tax policy for big companies.
This year, however, Australia enforced a measure similar to the U.K.’s diverted profits tax with higher penalties.
In addition to The Cooper Companies and Netgear, three other large companies have said they face the U.K.’s diverted profits tax. London Stock Exchange Group Plc, U.K.-based drinks company Diageo Plc, and Switzerland-based conglomerate Glencore Plc are all dealing with separate charges.
Press offices for The Cooper Companies and Netgear didn’t respond to Bloomberg BNA’s requests for comment. In a previous statement on its Aug. 4 diverted profits tax disclosure, however, a Netgear spokesman told Bloomberg BNA that HMRC’s probe is “quite common” for multinational businesses.
Under the U.K.’s diverted profits tax laws, companies must notify HMRC if they have arrangements that may fall within the penalty’s scope. If HMRC believes a diverted profits tax is due, it first issues a preliminary notice. A charging notice then sets out its demands for the tax, giving companies just 30 days to pay.
Since 2015, HMRC has issued 16 preliminary notices and 14 charging notices, according to the Sept. 13 official data. At the time of its introduction, the government forecasted that the DPT would raise 275 million pounds ($364.2 million) for the 2017 financial year. Data released July 13 in HMRC’s annual report, however, showed it yielded a total of 281 million pounds for that period.
In an Oct. 3 statement, a spokesman for HMRC told Bloomberg BNA that the DPT was introduced to prevent large companies trying to cut their tax bills through “contrived arrangements.”
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