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Diverted profits tax


On 1 April 2015 the UK is introducing a new tax, the Diverted Profits Tax (DPT) which has been dubbed the “Google tax” by the media and is aimed at aggressive tax planning that erodes the UK tax base. Taxand UK provides and overview of the new tax.

Based on the current draft legislation, the new DPT tax potentially applies to a much broader group of companies and transactions than intended, including some ordinary commercial transactions with no contrived tax avoidance. The draft legislation published in December 2014 is likely to be amended before implementation and we understand this will narrow the current scope of the legislation. However the main principles will not change.

What is the tax? 
The tax is a new tax that applies to all profits diverted on or after 1 April 2015.  The rate of tax is 25% (as compared to the  rate of corporation tax that will be 20%) and has been set to try and discourage certain types of activity which the UK tax authorities (HMRC) wish to target.  DPT only applies to large groups (as defined by the EU) and for the purposes of the ‘avoided PE’ condition it only applies where sales by the group into the UK exceed £10m. It is not subject to self-assessment, but instead is levied by HMRC issuing a notice.  Payment of tax is due within a very short timeframe of the initial assessment being raised by HMRC.  There is a notification requirement if the tax might apply.

As it is not corporation or income tax, losses cannot be set against the DPT. In addition, HMRC believe the DPT is not within the scope of existing tax treaties and that it is compliant with existing EU directives and BEPS initiatives.

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Your Taxand contact for further queries are:
Richard Syratt
T. +44 20 7863 4722

Claire Lambert
T. +44 20 7072 3285

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Taxand's Take

Although there is currently a reasonable amount of uncertainty as to how the draft law and guidance will change, it is clear the new tax will be implemented from 1 April 2015 as it is politically motivated in an election year in the UK.

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