UK opens surprise diverted profits tax compliance programme

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by surprise, HM Revenue & Customs announced the profit diversion compliance facility, targeting MNEs that still have outdated transfer pricing arrangements that could fall under the scope of the DPT.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