An HMRC press release of 27 January 2020 noted that more than GBP 5 billion in extra tax has collected from large multinational companies since 2015 owing to the introduction of the diverted profits tax (DPT).

The DPT was introduced in the UK from 1 April 2015 to combat the diversion of profits out of the UK by means of complex business structures. The tax applies to diverted profits of both UK and multinational companies at a rate of 25%. The DPT would apply to certain types of artificial arrangement to divert profits from the UK, such as arrangements to avoid creating a permanent establishment or arrangements without economic substance that exploit tax mismatches:

Although these arrangements mainly involve foreign companies, the DPT could also apply to structures set up wholly within the UK. There is an exemption for small and medium enterprises (SMEs) and an exemption for arrangements that only involve loan relationships.

The statistics show that GBP 5 billion has been collected since the DPT was introduced in 2015. There have been more than 60 investigations involving the collection of additional corporation tax of more than GBP 2.2 billion; additional VAT of almost GBP 2 billion after businesses had to restructure their operations as a result of HMRC investigations; and collection of GBP 369 million from DPT charging notices issued in relation to other taxes.

So far in 2019/20 another GBP 480 million has been collected as a result of DPT investigations, and there are currently around 100 ongoing investigations relating to profits possibly diverted by multinational groups. As a result of the investigations businesses are changing their tax behaviour and policies, with the result that additional corporation tax and VAT are being collected from them.

Profit Diversion Compliance Facility

On 10 January 2019 HMRC launched the Profit Diversion Compliance Facility (PDCF) to encourage multinational enterprises to reconsider their transfer pricing policy or business restructurings, disclose relevant facts on their activities and pay the relevant tax liabilities. Companies using the PDCF before the end of 2019 could reduce the amount of penalties due.

The guidance on the PDCF noted that inappropriate transfer pricing was the most common way of diverting profits from the UK but a risk of lost tax revenue also arose in relation to the DPT, permanent establishments or company residence.

In 2019 HMRC sent “nudge” letters to some businesses to encourage them to register for the PDCF within 90 days. Taxpayers that did not register after receiving a “nudge” letter could be investigated. HMRC noted that the PDCF was used by around two thirds of the large businesses targeted by the facility.

HMRC is now focusing more resources on investigating the multinational businesses that may be continuing to divert profits from the UK.