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