Posted by admin - April 23, 2015 3:18 pm
Diverted profit tax
What is Diverted profit tax (DPT)?
The diverted profit tax (DPT) was introduced in the 2014 Autumn Statement. It is designed to counter the aggressive tax planning which some multinational groups have established in order to:
- either avoid or reduce their UK corporation tax by diverting profits from the UK or,
- by avoiding a tax presence and/or by other contrived arrangements between connected entities
New legislation
From 1 April 2015 under new DPT legislation a new 25% tax will be levied on diverted profits. The DPT will operate through two basic rules:
- to counteract arrangements by which foreign companies exploit the permanent establishment rules.
- to prevent companies from creating tax advantages by using transactions or entities that lack economic substance
From 1st April Companies will have up to 6 months from the end of their first accounting period thereafter to notify HMRC if they believe they are exempt of DPT.
The new legislation, whilst complex, does allow for some exemptions, including those for:
- SMEs
- companies with limited UK sales or expenses
- and for arrangements which give rise to loan relationships only
Partner Martin Humphreys comments, “The DPT (often known as the “Google Tax” due to the size of the businesses involved) is a complex tax confirmed by the fact that the high level summary runs to ten pages. The Government states that the tax is only aimed at artificial and contrived arrangements, which seems quite fair. However, it remains to be seen how this will work in practice and whether ordinary commercial arrangements will be caught in the crossfire.”
For more information about DPT read HMRC’s guide
For further help and information on Business or Personal Taxation please contact your local MFW office.
