Diverted Profits Tax – interaction with corporate tax closure notices and change to relief provisions

Who is likely to be affected

A limited number of large multinational companies with business operations in the UK which have engaged in artificial arrangements to divert profits from the UK and have therefore been subject to diverted profits tax.

General description of the measure

This measure legislates to amend Sections 101A and 101B of Part 3 of the Finance Act of 2015 to ensure that customers can still use these relief provisions to amend their corporate income tax returns and allocate taxable diverted profits to corporation tax during the diverted profits tax review period. . This measure will also legislate to amend Part 3 of the Finance Act 2015 to ensure that the interaction between diverted profits tax review periods and what happens when a tax investigation on companies is closed is working as planned.

Political objective

To ensure that the diverted profits tax legislation works as intended and that clients are still able to make use of the relief provisions in Sections 101A and 101B of Part 3 of the Finance Act 2015 .

Context of the measure

The measure was announced in the 2021 fall budget to ensure that the diverted profits tax regime continues to operate as intended.

Detailed proposal

Effective date

The measure will apply to all diverted profits tax review periods beginning on or after October 27, 2021.

Current law

Businesses engaged in diverting UK profits that qualify for the diverted profits tax are subject to the following legislation:

• Title 3 of the 2015 finance law
• Annex 6 to the 2019 finance law

Proposed revisions

Legislation will be introduced in the Finance Bill 2021-22 to:

• Amend sections 101A and 101B of Part 3 of the Finance Act 2015 (as amended by Schedule 6 to the Finance Act 2019) to ensure that an amendment under these sections takes effect immediately.
• Amend Part 3 of the Finance Act 2015 to clarify that HMRC cannot issue a corporation tax closure notice in respect of profits subject to a DPT charge before the end of the review period.

Summary of impacts

Impact on Treasury (£m)

This measure should have no impact on the Treasury.

Economic impact

This measure should not have significant economic impacts.

Terms used in this section are defined in accordance with the Office for Budget Responsibility’s indirect effects process. This will apply when, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.

Impact on individuals, households and families

This measure should have no impact on individuals. It is expected that there will be no impact on the formation, stability or breakdown of the family.

Equalities impacts

This measure will only impact large multinational companies, and therefore it is not expected that there will be any impacts on groups that share protected characteristics.

Impact on businesses, including civil society organizations

This measure should have no impact on companies, which will see no change from what they are currently doing. There should be no cost to businesses. There should be no impact on civil society organizations.

Operational impact (£m) (HMRC or other)

The measure has no operational impact on HMRC.

Other impacts

Other impacts were taken into account and none were identified.

Monitoring and evaluation

The measure will be reviewed through pre-existing diverted profit tax monitoring processes.

Additional tips

If you have any questions regarding this change, please contact Helen Steer (Transfer Pricing Policy Team) by email: helen.steer@hmrc.gov.uk.