The risk of tax litigation is rising for the FTSE 100 as companies increasingly face challenges from HMRC over complex transfer pricing arrangements. Raichel Hopkinson, head of practical law dispute resolution at Thomson Reuters Legal considers how to mitigate the tax risk
Tax disputes remain a key area of risk for FTSE 100 companies. Last year, the UK’s biggest corporates told shareholders that the cost of their disputes with tax authorities had risen by a third, reaching some £3.6bn in 2017, according to the FTSE 100’s most recent annual reports. With shareholder value and brand reputation at stake, the increase begs the crucial question: what’s behind this significant upswing and can corporates mitigate the risks?
The rise comes as a result of an ongoing crackdown by tax authorities worldwide on suspected corporate tax avoidance. Of particular focus is transfer pricing, which is a major cause of disputes involving multinational companies. HMRC alone has reported that it believes it was underpaid £5.8bn by large companies through transfer pricing in 2016/17, up from £3.8bn the previous year. It is no surprise then that tax authorities have taken an increasingly combative stance towards what they see as an abuse of the transfer pricing rules in recent years.
