• Diverted profits tax

Diverted Profits Tax

Are your cross-border tax structures affected?

2015/16 was the first year that the UK’s 25% diverted profits tax (DPT) could apply to multinational businesses trading in the UK. Although it has been dubbed the ‘Google tax’ by the Press, a wide range of multinationals may be affected. BDO has developed an approach to help multinational groups assess their risks, exposure, strategy and reporting processes to help them manage this new cost of doing business in the UK.

As with most UK taxes, businesses must self-assess whether they fall within the scope of DPT, if they do, they have a duty to notify HMRC within three months of the end of the accounting period. As a transitional provision, this deadline is extended to six months where a company’s first period within the new regime ends on or before 31 March 2016.

BDO has developed a five stage approach to help companies assess and manage the impact of DPT on their business.

Notification

We will review your group activities using our own in-house methodology to review the legislation and document the basis on which we consider DPT does or does not apply. If 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.

Initial exposure assessment

Where DPT could apply, we’ll calculate the potential tax liability and undertake a qualitative and quantitative review of the risk of the charge arising including a transfer pricing and substance risk factors assessment and the likely impact on tax and accounting. We will prepare a report which sets out:

  • The basis on which we consider the group will be assessed to 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.

Management strategies

We will work with you to undertake a value chain analysis, permanent establishment and substance assessments and make recommendations on adjustments to the group’s transfer pricing and business model. We can then assist you with all aspects of implementing any appropriate changes.

DPT charge computation

We will work with you to prepare a detailed calculation of the potential DPT charge to enable you to assess the potential accounting impact and assist with cash flow planning.

Engaging with HMRC

We can help you engage proactively with HMRC from the start. Discussing your group’s value chain profile with HMRC in an open manner is the best way for you to manage the impact that DPT could have on cash flow.

Our five stage methodology can help your multinational group assess the risk of this new tax applying, manage its exposure in the future and, where necessary, quantify and report the charge to HMRC.