INTM489992 - Diverted Profits Tax: imposing a charge – procedure and governance: governance

Diverted profits governance seeks to take in all tax risks (not only DPT) that arise from arrangements identified as potentially within the scope of the DPT legislation. It is part of HMRC’s wider international governance procedures, including those for transfer pricing.

At the risk assessment level there is a process beginning with a risk review aimed at determining whether the arrangements present high risk and should be considered for investigation or a targeted letter for the PDCF. This review will be conducted by an LB International Tax Specialist, or an MSB Diverted Profits Technical Coordinator, working with other stakeholders, before its conclusions are presented to members of a panel of experienced officers.

If it is not clear from the initial risk review presented at this point whether the issues considered present high or low risk that the company is potentially subject to DPT, the HMRC case team will need to carry out further work which may need to include seeking further information from the company to establish the position. A transfer pricing enquiry must not in any circumstances be opened or settled unless approval to do so has been obtained under the appropriate governance procedure. The initial risk review will need to be resubmitted once this further work is completed.

Arrangements that are agreed by the experienced officers to have a potential DPT risk which will be investigated will require a detailed risk review. This will be expected to involve significant engagement with the company. In relation to DPT it will be aimed at reaching a recommendation as to whether a preliminary notice should be issued. If a notice is recommended, the completed documents are passed via the DPT Unit to senior officers from various HMRC directorates, including the designated HMRC officer mentioned in the legislation. They will decide whether it is appropriate for a preliminary notice to be issued and, if so, when and in what amount. As mentioned above, any related transfer pricing enquires into returns must be explicitly authorised.

It is important that risk reviews consider other challenges to structures that divert profits from the UK, particularly for periods before DPT applies. This could involve Permanent Establishment (PE) and transfer pricing challenges outside the DPT legislation. Case workers or CCMs should not, for example, accept that sales into the UK do not give rise to a UK PE without making thorough enquiries and checking with the LB international Tax Specialist, or MSB Diverted Profits Technical Co-ordinator.

Where the issue of a preliminary notice is agreed, it will be signed by the designated HMRC officer and issued. Any representations will be considered by the designated officer in accordance with the legislation before deciding whether to issue a charging notice and, if so, in what amount, within the 30-day period allowed.

A similar process to the issue of the preliminary notice will apply if the case team considers that an amending or supplementary notice should be issued during the review period. However, if an amending notice has the effect of eliminating the DPT charge, or it is otherwise anticipated that it will have the effect of resolving matters, the governance procedure for resolution will apply.

At the conclusion of the review period the case team will make a report to the appropriate governance body. Where the report recommends continuing the dialogue with the company following receipt of an appeal against the charging notice it should include a commitment to resubmission with a progress report at a specified future date or when settlement proposals are made, if earlier. Otherwise the senior officers will review the risk(s) and decide on the recommendation to be made to the appropriate dispute resolution board(s).