On 10 January 2019 HMRC launched the Profit Diversion Compliance Facility targeting multinational companies using arrangements that may result in a liability to the diverted profits tax (DPT). These arrangements generally involve the reduction of profits by paying too little remuneration for activity in the UK or paying too much remuneration for activities located in an overseas jurisdiction where there is low or no taxation.

Multinationals that are not already under investigation by HMRC in relation to the diversion of profits have an opportunity to bring their UK tax affairs up to date by reconsidering their transfer pricing policies or their business restructuring; fully disclosing relevant facts on their activities and computing the correct tax payable; and paying the relevant tax liabilities. The facility is also available to multinationals that are already under investigation in relation to profit diversion.

It is reported that HMRC is planning to send letters to a few hundred large and medium-sized companies suggesting that they should use the facility to disclose details of their transactions or arrangements and pay the relevant tax. If they make a disclosure before the end of 2019 companies can use the facility and may pay fewer penalties.

A company should submit a disclosure report to HMRC within six months of registering for the facility. During the period HMRC allows for a company making a disclosure to complete and review its report HMRC will not begin a new investigation into tax liabilities arising from the relevant arrangements.

After the receiving the company’s disclosure report HMRC will contact the taxpayer for any required clarifications and explanations. A specialist HMRC team will consider whether the facts and conclusions in the Report correspond to the evidence available and check to establish whether the transfer pricing policy adopted is reasonable and in line with the OECD transfer pricing guidelines. HMRC will respond to the taxpayer within three months after submission of the report and if the taxpayer’s proposal is accepted the next steps will then be agreed.