Diverted Profits Tax

Who is affected by the Diverted Profits Tax?

The UK’s 31% diverted profits tax (DPT) is potentially applicable to a wide range of multinational businesses trading in the UK. Some very prominent multinational groups have reported receiving DPT notices, and the tax has raised more than initially forecast. HMRC have indicated that they intend to keep up their enforcement efforts in this area.

As with most UK taxes, businesses must self-assess whether they fall within the scope of DPT. Companies that consider that DPT applies have a duty to notify HMRC within three months of the end of the accounting period.

5 Stage Diverted Profits Tax approach

We have a five-stage approach to help multinational groups to manage this new cost of doing business in the UK. We begin by assessing their risks, exposure, strategy and reporting processes. We will prepare a report that sets out:

  • The basis on which we consider the group will be assessed for DPT
  • An initial assessment of DPT payable and the impact on how it would be accounted for
  • How the group can manage its DPT exposure in the future.

We will review your group activities to ascertain whether DPT does or does not apply. We carefully document the basis for our findings. If DPT does apply and you need to notify HMRC, we will help you create all the detailed information and documentation needed. Where DPT does not apply, our report will provide you with the basis on which you can defend any challenge from HMRC.

DPT Initial exposure assessment

Where DPT could apply, we will calculate the potential tax liability. We undertake a qualitative and quantitative review of the risk of the charge arising. This will include a transfer pricing and substance risk factors assessment and the likely impact on tax and accounting.

We will work with you to prepare a detailed calculation of the potential DPT charge so you can understand the accounting impact and manage cash flow.

DPT Management strategies

A complete value chain analysis, permanent establishment and substance assessments allow us to recommend adjustments to the group’s transfer pricing and business model. We will also assist with implementing any appropriate changes.

Engaging with HMRC on DPT

We can assist you to engage proactively with HMRC. Discussing your group’s value chain profile with HMRC in an open manner may help you to manage the impact that DPT could have on cash flow. Our approach and our reports and analysis will enable you do this with confidence.

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Global Tax Outlook 2023

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