UK opens surprise diverted profits tax compliance programme

08 February 2019

Multinational enterprises will get a chance to acknowledge their outdated transfer pricing policies and avoid the diverted profits tax (DPT) under an unexpected new UK disclosure facility, which practitioners are eyeing with caution.

On 10 January guidance was published that caught many in the tax community by surprise, HM Revenue & Customs announced the profit diversion compliance facility, targeting MNEs that still have outdated transfer pricing arrangements that could fall under the scope of the DPT.

The DPT took effect 1 April 2015, and is levied on profits derived from the United Kingdom by a company that has either structured its operations to avoid creating a permanent establishment or made payments to a related company under an arrangement that lacks economic substance. The DPT is assessed at a punitive 25% rate and is subject to more stringent assessment procedures, such as upfront payment within 30 days after receiving a charging notice, compared with the ordinary corporate tax, which may be paid after an appeal and at a 19% rate.

This article was first published in Tax Notes International, Jan. 14, 2019