SolvedINTM489908 | Diverted Profits Tax: notification, charging and payment: representations following a preliminary notice
From HM Revenue & Customs · International Manual
The company has 30 days from the issue of a preliminary notice to send written representations to HMRC. HMRC is required to consider representations made on the following grounds before issuing a charging notice:
there is an arithmetical error in the calculation of the amount of DPT or the taxable diverted profits,
there is an error in a figure on which an assumption in the preliminary notice is based,
the small or medium-sized enterprise requirement is not met,
in a case where either a UK company is involved with transactions or entities that lack economic substance, or a non-UK company acting through a UK PE is involved with transactions or entities that lack economic substance:
the participation condition is not met, or
the 80% payment test is met, or
the effective tax mismatch outcome is an excepted loan relationship outcome.
in a case where a non-UK company has avoided a UK taxable presence:
the exception for limited UK-related sales (£10 million or less) or UK-related expenses (£1 million or less) applies
the avoided PE is excepted because of one of the conditions in section 86(5) related to:
if the preliminary notice states that the mismatch condition is met:
the participation condition is not met, or
the 80% payment test is met, or
the effective tax mismatch outcome is an excepted loan relationship outcome.
The designated officer must take into account the customer’s representations on these grounds and will also take account of all relevant information to make the best estimate of taxable diverted profits. In practice this may mean considering representations outside of section 94 where those factors impact the best estimate of taxable diverted profits. There is no requirement for HMRC to consider any representations in relation to:
any provisions of Part 4 TIOPA 2010 related to transfer pricing, or
any attribution of profits of a company to a permanent establishment (including notional attribution in section 86 cases) unless they fall within the categories of representation set out above.
The representations that HMRC must consider are limited to factual matters that it should be possible to establish relatively quickly. Matters which require more in-depth exploration and detailed analysis, such as transfer pricing and profit attribution, should be considered during the 15-month review period following the issue of a charging notice.