Question:

How do UK audit firms give UK subsidiaries of multi-nationals clean audit reports when profits have been transfer priced out? Particularly when there are minority UK shareholders.

Answer:

Good Question! My next article in Accountancy Magazine is on the audit of large companies. Your question is more specific, but I shall put this rough and ready response on my website nevertheless, if you don’t mind.

As long as the accounts of both the parent and the subsidiary, either on the face of the accounts or in the explanatory narrative of a Note, make it clear that group transfer pricing policies have shifted £x from Sub to H Co (whether in the form of a management charge, services or otherwise) the auditors will have reported correctly – as is the case with Starbucks, Amazon, Google, et al. Lower tax regimes are the usual excuse, but it is legitimate of course.

If, however, the transfer of profits by the directors amounts to a fraud on the minority interest in the UK subsidiary (or is at least conduct that is “unfairly prejudicial” to those interests) then there are well-known legal remedies (usually referred to as Sec 159 remedies) available for the minorities, who are able to compel the directors to buy out their interests at a value determined by the Courts.

The remedy is therefore against the directors/ the company rather than the auditors.