UK: Deloitte Budget 2015 – Diverted Profits Tax
The measure
The Chancellor confirmed that the new diverted profits tax (DPT) will be introduced from 1 April 2015. DPT will apply in two distinct situations, being:
Where a foreign company has artificially avoided having a taxable presence in the UK; and
Where a UK company (or a UK permanent establishment of a non-resident) has transactions with a low-taxed entity that lack economic substance.
DPT will be set at a rate of 25%.
Revised legislation will be included in Finance Bill 2015, which will be published on Tuesday 24 March, with further HMRC guidance expected to follow shortly afterwards.
Following consultation, the government has announced that the notification requirement will be narrowed. The legislation will also clarify the rules for giving credit for tax paid, the operation of the conditions under which a charge can arise, specific exclusions and the application of DPT to companies subject to the oil and gas regime.
Who will be affected?
This measure will apply to certain multinational groups with activity in the UK. The government has said that DPT is aimed at complex business arrangements and we expect that the updated guidance will provide further clarification on the ambit of the new tax.
When?
DPT will apply from 1 April 2015. Companies with accounting periods straddling this date will effectively have two separate accounting periods for these purposes, with DPT (where relevant) applying to the period from 1 April 2015.
Our view
The announcement of the introduction of a new tax in the Autumn Statement came as a surprise, given the government’s support for the G20/OECD Base Erosion and Profit Shifting (BEPS) initiatives in these areas. The consultation process has indicated that the objective is to accelerate the introduction of some of the BEPS outcomes into UK law. Many companies have commented about the difference between the broad scope of December 2014’s draft legislation and the expectations expressed by Treasury and HMRC officials that DPT will be narrowly applied. It is hoped that narrower notification requirements and the other announced changes will provide clarity and remove some of the uncertainty.
