The following Corporation Tax guidance note Produced by Tolley in association with Paul Bowes provides comprehensive and up to date tax information covering:
A charge to diverted profits tax (DPT) for an accounting period can arise if one or more of the following three scenarios apply:
a UK company uses entities or transactions which lack economic substance
a non-UK company uses entities or transactions which lack economic substance
a non-UK company avoids creating a UK permanent establishment (PE)
FA 2015, s 77(2)
This guidance note sets out details of the charge to DPT in respect of the first two scenarios. More detailed examples of section 80 and section 81 cases can be found in HMRC’s guidance at INTM489780 onwards, including the application to particular types of assets and industries.
See the DPT ― avoidance of UK permanent establishment guidance note for details of the charge arising in the third scenario.
FA 2015, ss 80 and 81 are an extension of the UK transfer pricing provisions in situations where profits are diverted from a company with a UK corporation tax presence, to related persons (related by the ‘participation condition’ set out below), that give rise to a significant tax reduction as defined under the DPT legislation (using the ‘80% payment test’ ― see below). The related persons can be based either in the UK, by being resident or by having a PE in the UK (broadly in circumstances where advantageous UK tax arrangements apply), or outside the UK. Like the UK transfer pricing rules, reference is made to provision (the ‘material provision’) made or imposed between two persons (in the case of DPT, a company and another person) by means of a transaction or series of transactions (FA 2015, s 80(1)(b) similar to TIOPA 2010, s 147(1)(a)) and where the ‘participation condition’ is met between those persons (FA 2015, ss 80(1)(c) and 106 similar to TIOPA 2010, ss 147(1)(b) and 148). See below.
In practice, when reviewing the form and nature of the material provision transaction or transactions in FA 2015, ss 80 and 81 cases, these essentially apply to arrangements involving connected
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