Update to the Diverted Profits Tax
12 November 2018
DPT is a separate tax charged at the rate of 25%. It was introduced in 2015 to counter arrangements to divert profits from the UK either:
- Where a company with a UK taxable presence uses arrangements lacking economic substance to artificially divert profits from the UK or
- Where a person carries out activities in the UK for a foreign company that are designed to avoid creating a Permanent Establishment (PE).
Finance (No 3) Bill 2018-19 includes changes to the DPT provisions in Part 3 FA 2015. The changes:
- Make sure the rules work effectively, where avoidance arrangements give rise to planning opportunities for accounting periods beginning on or after 29 October 2018 and
- Make clear that diverted profits will only be taxed under DPT or corporation tax provisions effective for accounting periods beginning on or after 1 April 2015.
In addition, Finance (No3) Bill 2018-19 includes modifications to the mechanics of the provisions to:
- Extend the period for issuing a preliminary notice to 30 months for cases where there is lack of economic substance - effective for accounting periods ending after the date of enactment.
- Extend the “review period” where HMRC and the taxpayer work together to determine the extent of diverted profits, from 12 months to 15 months for review periods expiring on or after 29 October 2018.
- Allow a company issued with a charging notice under s80 or s81 to amend its corporation tax return, to include, diverted profits during the first 12 months of the review period.
- Allow that where an avoided PE of a foreign company is issued with a charging notice under s86, the corporation tax return of the avoided PE can be amended to include diverted profits during the first 12 months of the review period.
Read more on the Finance Bill 2018-19