The UK Government introduced a new tax from 1st April 2015, the Diverted Profits Tax (DPT), aimed at multinational enterprises (MNEs) that use contrived arrangements or entities to bypass UK rules on Permanent Establishment and Transfer Pricing.
Where it applies, the normal rate of DPT is 25% of the diverted profit plus any “true-up interest”, and where the taxable diverted profits are ring fence profits in the oil & gas sector, DPT is charged at a rate of 55% plus interest.
As the current UK Corporation Tax (CT) rate is 20%, DPT is clearly intended as a penal tax. Companies are required to notify HMRC within 3 months of the end of an accounting period in which they are potentially within the scope of DPT. There is a tax-geared penalty for failure to notify.
DPT is brought into charge by an HMRC officer issuing a charging notice. The first charging notices could be issued by 30th September 2015 and once a charge is raised it must be paid within 30 days. Payment may not be postponed on any grounds while the final liability is being agreed. The taxpayer has 12 months to agree the final liability with HMRC.
As the first charging notices could be issued by 30th September 2015 a group potentially within the charge to DPT should be looking to establish its exposure if it hasn’t already done so. If DPT applies you should obtain specific professional advice from an appropriately qualified professional. The logical step, in most cases, would be to restructure the arrangements such that the diverted profits become subject to UK CT at the lower 20% rate.