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This publication is available at https://www.gov.uk/government/publications/diverted-profits-tax-changes/diverted-profits-tax-amendments
Who is likely to be affected
This change will impact companies that are potentially subject to Diverted Profits Tax.
General description of the measure
The Diverted Profits Tax was introduced in Finance Act 2015. This measure makes a number of amendments to the Diverted Profits Tax legislation to close tax planning opportunities, to make clear diverted profits will only be taxed under either Corporation Tax or Diverted Profits Tax, and to make minor modifications to the mechanics of the Diverted Profits Tax legislation.
The main objective of the Diverted Profits Tax is to counteract contrived arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base. This measure supports that aim and protects revenue.
Background to the measure
This measure was announced at Budget 2018.
The Diverted Profits Tax rules counter 2 types of arrangements used by large groups to artificially divert profits from the UK. Firstly, situations where a company with a UK taxable presence uses arrangements lacking economic substance to artificially divert profits from the UK to low tax jurisdictions. Secondly, situations where a person carries on activities in the UK for a foreign company that are designed to artificially avoid creating a UK permanent establishment, and thereby a UK taxable presence, of that foreign company.
This measure introduces a number of amendments to the Diverted Profits Tax legislation.
The measure has effect on and after 29 October 2018.
The current rules for the Diverted Profits Tax are contained within Part 3 of the Finance Act 2015.
Legislation will be introduced in Finance Bill 2018-19 to amend Part 3 of the Finance Act 2015 to:
- close a tax planning opportunity, whereby Corporation Tax amendments can be made to a company’s return after the review period has ended and the Diverted Profits Tax time limits have expired (sections 82 to 85, 88 and 93)
- make clear, in line with the stated policy intention, that diverted profits will only be taxed under either the Diverted Profits Tax or Corporation Tax rules, but not both (section 100A)
- extend the ‘review period’, the time during which HMRC and the company are encouraged to work collaboratively to determine the extent of diverted profits, from 12 to 15 months (section 101)
- extend a company’s right to amend their Corporation Tax return during the first 12 months of the extended 15 month review period, but only for the purposes of including the diverted profits into a Corporation Tax charge
- make clear that diverted profits liable to Diverted Profits Tax can be reduced by amendment to the company’s Corporation Tax return during the first 12 months of the review period
The amending legislation will be published in the Finance Bill.
Summary of impacts
Exchequer impact (£m)
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This measure supports the Exchequer in its commitment to protect revenue.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals and households as it only affects companies.
The measure is not expected to impact on family formation, stability or breakdown.
It is not anticipated that this measure will have impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure has no impact on normally compliant businesses who are engaged in genuine commercial transactions. It will only impact on businesses who enter into arrangements to erode their UK Corporation Tax base. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will not incur any costs implementing this change.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with affected taxpayer groups.
If you have any questions about this change, contact Bob Beattie.
Telephone: 03000 516 165