The Diverted Profits Tax (DPT) is anti-avoidance legislation. It is intended to counteract contrived arrangements used by large groups to divert profits away from the UK tax base. The DPT legislation is primarily aimed at large multinational groups and will broadly apply if:
- a company (other than a SME), which is taxable in the UK creates a tax advantage by involving entities or transactions which lack 'economic substance', or
- a foreign company structures its affairs to avoid a UK taxable presence
There are limits and thresholds such that where all the parties to an arrangement are small companies the DPT regime will not apply.
If a company is within the charge to DPT it must notify HMRC within three months of the end of the accounting period. There is, however, no duty to self-assess. The tax is imposed by HMRC issuing a charging notice to the company.