Diverted Profits Tax - interaction with corporation tax closure notices and amendment to relieving provisions

The measure

The government announced two proposed technical changes to the Diverted Profits Tax (DPT) rules and released accompanying draft legislation.  The proposed changes are: 

  • the introduction of a new section 101C Finance Act 2015 which would prohibit HMRC from issuing a corporation tax closure notice for an accounting period where the review period following a DPT charging notice is still open - any direction for a closure notice from a relevant tax tribunal would thus only have effect after the review period has ended; and 
  • the amendment of section 101A Finance Act 2015 with the effect that companies will be able to amend their corporation tax returns within the first 14 months of the review period (15 months less 30 days) with such amendments able to have immediate effect during a CTSA enquiry. 


Who will be affected?

Companies who are currently within a DPT review period (following the issue of a DPT charging notice) or who in future enter into a DPT review period will be affected.


When will the measure come into effect?

The changes are proposed to have effect for any DPT review periods which are open at 27 October 2021 or are opened after that date.

Our view

These changes are a response to the defeat for HMRC in a recent tax tribunal decision concerning DPT.  The proposed changes would now make it clear that the only way to secure corporation tax rather than DPT on the ‘diverted profits’ is for a company to make an amendment to its corporation tax return within the first 14 months of the review period.  If a company does not agree with the transfer pricing position taken by HMRC and wishes to challenge this in litigation, they will be subject to DPT rather than corporation tax if there is eventually an adjustment.  These changes could result in more instances where companies become subject to DPT.