US companies underpaid as much as £8.8bn in tax, says UHY Hacker Young

US companies underpaid as much as £8.8bn in tax last year, according to according to data from UHY Hacker Young.

This is up 57% from the £5.6bn that HMRC believed was underpaid in the previous year. US companies account for the most underpaid tax out of all overseas countries – 46% of the £19bn of tax underpaid by all foreign companies.

HMRC has been increasing the number of investigations into large US companies, such as in the tech sector.

These companies have been accused by some commentators as underpaying tax in the UK by diverting their UK earnings to lower-tax jurisdictions such as Dublin in order to significantly reduce their UK tax bills.

This is achieved through ‘transfer pricing’, where one subsidiary company pays another for goods and services, such as the use of intellectual property. Some US companies have been accused of using this system too aggressively to artificially reduce their UK earnings and their corporation tax bills.

Phil Kinzett-Evans, partner and head of tax at UHY Hacker Young, said: “The amount of tax owed that HMRC suspects that US companies owe is continuing to grow at a scale that HMRC knows it can’t ignore.

“HMRC is under a lot of pressure to help fill the shortfall in tax revenues by cracking down on large companies. However, that conflicts with the need to keep the US government onside but not to be seen as too aggressive towards US companies.”

He added: “The US has threatened to retaliate against countries that impose unfair taxes on US companies. The list of the taxes defined as “unfair” by the US has previously included “diverted profit tax” and digital services tax – both of which exist in the UK.

“HMRC needs to tread carefully as it faces the challenge of ensuring the UK keeps a good relationship with the current US administration whilst also investigating US companies for underpaying tax. The less tax collected from US companies, the more has to be paid by other taxpayers.”