All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

COMMENT: The importance of the tax contribution from British business


Some recent press coverage in the UK could suggest that business spends its time doing everything it can to dodge every tax it owes. The facts show how far from the truth this is.

Businesses contribute more than a quarter of all tax revenues and underpin virtually all taxes. They paid around £163 billion ($216 billion) in tax (corporation and other taxes) in 2010-2011 - a quarter of the total tax take, roughly equal to the combined health, education and police budgets.

Businesses also collect a large amount of tax on behalf of the government, such as income tax through PAYE [pay as you earn]. Virtually all taxes, such as income tax, employees’ national insurance contributions and VAT depend on the successful operation of business.

The fact that many of the world’s largest multinational companies are based in the UK significantly boosts our economy. In fact, corporation tax revenues here are dominated by the multinational groups, whether UK or foreign-owned (42% and 45% respectively). Tax revenues from multinational corporations are essential to economic growth and to support our public services.

However, how much tax multinationals are or should be paying in the UK must not be considered purely in the context of national borders.

Global nature of business

The way business operates has changed dramatically over the last couple of decades. Multinational corporations are now truly global with groups organised around the world. When competing for investment from multinational groups, the UK must resist the temptation to claim taxes that may belong somewhere else by acting unilaterally. This would risk:

· undermining our competitiveness:

· causing tension with other countries; and

· having a detrimental effect on the UK’s economy.

Instead, the government needs to collaborate internationally to achieve a consistent approach to how taxing rights should be allocated globally. And with a substantial amount of world trade occurring inside multinational groups, getting transfer pricing rules right internationally should be the UK’s number one goal.

Transfer pricing complexity

The purpose of transfer pricing rules is, of course, to ensure that companies within a group that transfer goods or provide services to other companies within the same group pay a price which is based on the arm’s-length principle.

This ensures that as far as possible profits earned in different jurisdictions reflect a multinational’s business operations. More importantly, the rules also determine how international transactions within a group must be priced to ensure each country receives an appropriate share of tax.


However, any multinational group’s tax department knows that transfer pricing is inherently complex. For example, it can be difficult to compare pricing of transactions between companies in a multinational group and those between unrelated parties. As seen in the recent OECD’s consultation, transfer pricing of intangibles such as intellectual property is even more challenging. That’s why both taxpayers and tax administrators often name transfer pricing as the leading source of tax risk.

International coordination is the only way to go

Not surprisingly, and rightly so, one of the OECD’s top priorities for the next few years continues to be transfer pricing, and in particular how to address intangibles. Reaching consensus on different aspects of transfer pricing and then developing and implementing a consistent and manageable set of guidelines is not a quick and easy task. But in a world where business is truly global, this is the only way to go.

The UK should be at the forefront of actively encouraging such international cooperation. This is our best bet to achieve a system which is consistent, gives certainty to businesses and, importantly, ensures that the UK receives its fair share of tax.

Richard Woolhouse, Confederation of British Industry’s head of tax and fiscal policy

more across site & bottom lb ros

More from across our site

This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree