The figure refers to 'tax under consideration' by the large business directorate, the specialist team within HMRC which scrutinises the tax affairs of the UK's 2,000 largest and most complex businesses. It is an estimate of the maximum potential additional tax liability across all open enquiries but before any investigations have been completed.

Heather Self, partner and tax expert with Pinsent Masons, said that the ‘substantial’ increase in the figure over the last 12 months suggested that HMRC had opened a significant number of new enquiries over that period, making transfer pricing the single largest risk or source of potential tax inaccuracies for large businesses.

‘It seems the Revenue (HMRC) is taking a fresh look at the UK's largest businesses, with a focus on intra-group, cross-border transactions. This is likely to be a reaction to the increasing focus of the OECD and EU on international taxation, and it suggests that HMRC is getting bolder at challenging the amount of profit which should be allocated to UK economic activities.

‘HMRC has been investing in transfer pricing specialists, and this is quite clearly reflected in the figures,’ Self said.

The early impact of the UK's new diverted profits tax (DPT), which was first introduced in April 2015, could be one of the factors driving the increased amount of tax under consideration by HMRC, Self suggested. The DPT is charged at a rate of 25%. It applies to arrangements that create tax advantages either by exploiting the permanent establishment rules, or through the use of entities that lack economic substance.

‘Although it is too early to see DPT enquiries, we could be seeing a surge in transfer pricing challenges for earlier years with a view to extending them to DPT later on,’ Self said.