Taxand UK discusses the impact of the UK diverted profits tax.
This week Her Majesty’s Revenue & Customs (HMRC), the UK’s tax authority, released key statistics related to the UK Diverted Profits Tax (DPT). DPT of £138m has been collected during the period from April 2015 (when the tax was introduced) to April 2017. Diageo announced in May this year that it would be paying £107m, but intends to challenge the assessment, so it is possible some of the amounts collected will be refunded. HMRC also estimates it collected £174m of additional corporation tax from behavioral changes – this figure will be a low estimate and will only accurately capture situations already under HMRC enquiry.
U.S. headquartered Netgear recently garnered much press attention by disclosing it was in discussion with HMRC on DPT. Such a discussion, however, would be well in advance of any notice charging Netgear with a DPT liability (only 16 notices were issued before April 2017). Due to the likelihood that most U.S. tech groups in the UK, and likely other industry groups, have a structure requiring similar conversations with HMRC (if such conversations have not already started), this message is to provide U.S. groups with a primer on what they need to know about the DPT and how to manage their potential DPT exposures.
Discover more: The impact of the UK diverted profits tax
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One of the key aims of DPT is behavior change, and companies at risk can often amend transfer pricing arrangements to ensure profits have not been diverted. In January 2016, for example, Google settled a long running transfer pricing enquiry with HMRC to the tune of £130m and stated that it would apply revised transfer pricing from 2015 onwards. And thus, ironically, Google itself has not been (and is unlikely to be) subjected to the Google Tax.
