INTM489886 | Diverted Profits Tax: notification, charging and payment: duty to notify if potentially within the scope of Diverted Profits Tax - who must notify

A company must notify HMRC if it is potentially within the scope of DPT.

A company is potentially within the scope of DPT if:

• it is a company resident in the UK that enters into a transaction where either the transaction or an entity which is party to the transaction lacks economic substance and that results in a tax mismatch, or

• it is a non-UK company which has a UK-taxable presence (a permanent establishment) that enters into a transaction where either the transaction or an entity which is party to the transaction lacks economic substance and that results in a tax mismatch, or

• it is a non-UK company which has sought to avoid creating a taxable presence in the UK.

But, for the purposes of the notification requirement only, there are modifications to the way these tests apply. These are:

• in all cases, the “insufficient economic substance condition” is disapplied but in cases where a tax mismatch is a condition to potential liability, there will be deemed to be no such mismatch unless the financial benefit of the tax reduction is significant relative to the other benefits;

• in the case of a non-UK company avoiding a UK taxable presence, instead of the condition which requires there to be a reasonable assumption that any of the activity of the avoided PE and/or the foreign company is designed to ensure that the foreign company is not trading in the UK for the purposes of corporation tax, there is simply a condition that the foreign company is not carrying on a trade in the UK for the purposes of corporation tax;

• in the case of a non-UK company avoiding a UK taxable presence, instead of the tax avoidance condition being that there are arrangements in place which have a main purpose of avoiding or reducing a charge to corporation tax, there is simply a condition that there are arrangements which result in the avoidance or reduction of a charge to corporation tax as a result of which there is an overall reduction in the amount of tax (including foreign tax) payable in respect of the activities carried out in the UK.