The diverted profits tax may have raised £281m in tax revenue in the first full year of operation, but it is proving a challenge for companies. Ian Hyde, tax partner at Pinsent Masons considers the interaction of DPT with advance pricing arrangements (APAs)
Diverted profits tax (DPT) was introduced in April 2015 and is ‘designed to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK’ (introduction, HMRC DPT guidance). It is charged at a rate of 25% (as opposed to the corporation tax rate of 19%) and has its own regime within Finance Act 2015, entirely separate from corporation tax self assessment.
DPT applies in two key situations. The first applies where a UK company (or UK permanent establishment) has entered into transactions with a connected party, and it is ‘reasonable to assume’ that the transactions were designed to secure a UK tax reduction. The second is where a non-UK company has avoided creating a UK permanent establishment (PE).
