Profit Diversion – a new wave of “nudge” letters plus a possible extension of the HMRC Compliance Facility?

24 September 2020

HMRC’s Profit Diversion Compliance Facility (PDCF) is a disclosure facility that opened in January 2019 offering groups the ability to clear up any historic non-compliance with the Transfer Pricing and Diverted Profits Tax regimes plus any other non-compliance, in a managed way. The intended benefits include any disclosure is to be treated as unprompted with the prospect of lower financial penalties plus a managed agreed process with HMRC

The PDCF is still ongoing and we understand another batch of “nudge” letters are now being issued. HMRC has received a number of the disclosure reports following the earlier nudge letters it issued and from our discussions HMRC is very pleased with the process so far both in terms of the cooperation displayed by groups and their advisors but also the quality of the disclosures made. It is likely significant additional tax has been reported via this process and it is understood HMRC is considering how a similar compliance facility can be used to helps groups address other areas of tax risk.  

To register for the PDCF, a group doesn’t need to wait for a nudge letter from HMRC – indeed we understand a number of groups have recently proactively approached HMRC to notify their intention to register.  To register for the PDCF it is not necessary to know for certain at that time that there has been non-compliance and that there is additional tax to pay. Instead, the group can register and during the registration meeting with HMRC it can propose the areas it intends to investigate and report on and HMRC may at that meeting share any specific risks it has identified that have not been raised by the group.

In our experience groups have welcomed the opportunity to obtain certainty on group’s the historic tax compliance in a collaborative and managed process that the PDCF offers.
At BDO we have a dedicated team of Transfer Pricing and ex-HMRC Dispute Resolution specialists with the combined technical and investigation skills to support groups through the risk assessment and report preparation. 
If you would like to discuss your group’s position, please get in touch.