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Profit Diversion Compliance Facility: voluntary disclosures

10 January 2019

HMRC today launched a voluntary disclosure facility – they expect most companies using the facility to disclose additional corporation tax as a result of their transfer pricing policies.

Read our guide

HMRC is launching the Profit Diversion Compliance Facility to encourage companies to make voluntary disclosures about mistakes or failures to notify in respect of profits diverted from the UK. HMRC expects most companies using the facility to disclose additional corporation tax as a result of their transfer pricing policies. We understand that late payment interest and financial penalties will be applied. There is no amnesty element to this facility. Full taxes for all years, including retrospectively, will be expected to be paid. 

It is no surprise that HMRC is focusing on international businesses who operate in low tax or no tax jurisdictions. This is an ongoing focus for the UK Treasury, the EU and the OECD across all the developed tax regimes around the world.  There is also likely to be strong public support, with many people keen to see large businesses paying their ‘fair share of tax’ in the UK. 

We expect HMRC to issue so-called ‘nudge’ letters to businesses it considers should either use the facility, or which need to review their affairs and potentially make a voluntary disclosure.
Businesses will need to carefully assess whether or not the facility is in fact the best way to approach HMRC. It is not the only process for making a voluntary disclosure to HMRC. Given the risk of a more serious investigation,  any affected business would be wise to seek expert tax advice prior to making any approach to HMRC.

We understand HMRC has already undertaken a risk assessment process to identify approximately 2,000 businesses which it considers may be affected and it would like to hear from.  HMRC is dedicating significant resource looking at these areas, primarily aimed at larger groups of companies.  Ignoring a letter from HMRC on this issue is clearly not advisable.

Watch our video update from Dawn Register, Tax Dispute Resolution Partner, who explains what the Facility is and why HMRC are focusing on this now: