Introduction to the diverted profits tax

By Tolley in association with Paul Bowes
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The following Corporation Tax guidance note by Tolley in association with Paul Bowes provides comprehensive and up to date tax information covering:

  • Introduction to the diverted profits tax
  • Background
  • Circumstances in which DPT may apply
  • Entities that may be subject to DPT
  • Charging notice and other administrative matters
  • Rate of DPT
  • Commencement and transitional provisions
  • DPT and general anti-abuse rule (GAAR)
  • EU aspects
  • Further reading

Background

It was announced at Autumn Statement 2014 that a new tax would be introduced, known as the diverted profits tax (DPT) (see the Autumn Statement 2014 ― corporate tax overview news item). The final legislation was introduced by Finance Act 2015, ss 77–116 and Sch 16. The government hopes that the introduction of the DPT will deter multinational groups of companies from implementing aggressive tax planning techniques which divert profits away from the UK in an attempt to minimise the group’s overall corporation tax bill.

HMRC, which is responsible for the collection and management of DPT, published updated guidance on the operation of the DPT regime in December 2018, in the form of DPT: guidance . References to HMRC’s guidance are made throughout this note. The previous versions published in March and November 2015 have been superseded by this. HMRC has stated its intention to incorporate the guidance into the International Manual (INTM) in due course.

FA 2015, s 103

This guidance note helps readers to understand the basic principles of the DPT regime to enable them to ascertain whether a particular scenario is likely to attract a charge to DPT, with links to additional sources of information as appropriate.

Circumstances in which DPT may apply

A charge to DPT may be applied to the taxable diverted profits of a company for an accounting period if one or more of the three situations summarised below arises:

  • charge on a UK company where entities or transactions lack economic substance (section 80 charge)

    The first situation in which a charge to DPT could arise is where a provision is made or imposed between a UK resident company and a related person, as a result of which the UK resident

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