Introduction to the diverted profits tax

Produced by Tolley in association with Paul Bowes
Introduction to the diverted profits tax

The following Corporation Tax guidance note Produced 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
  • Interaction with other taxes
  • Commencement and transitional provisions
  • DPT and general anti-abuse rule (GAAR)
  • Further reading

Background

The diverted profits tax (DPT) was introduced by Finance Act 2015, ss 77–116 and Sch 16. The aim of the DPT is to 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 guidance on the DPT can be found at INTM489500 onwards.

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:

  1. 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 company achieves a tax reduction significantly greater than any tax increase for the other person (in other words, there is a ‘tax mismatch’), and it is reasonable to assume that the provision was designed to secure the tax reduction. The existence of this provision means that DPT could apply in cases where wholly UK based structures are involved, as opposed to multinational structures.

    This is explored further in the DPT ― entities or transactions lacking economic substance guidance note.

  2. charge on a non-UK company where entities or transactions lack economic substance (section 81 charge)

    The second situation in which a charge to DPT could arise is where a non-UK resident company is trading in the UK through a permanent establishment (PE) and the first situation in (i) above would apply to that PE if it were a UK-resident company.

  3. charge

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