The Diverted Profits Tax (DPT) came into force on 1 April 2015. The DPT is an anti-avoidance measure that targets large multinational businesses that the government deem to be using contrived and artificial arrangements to divert profits overseas thereby paying less or no tax in the UK.
The DPT has been coined as the 'google tax' but the net is spread much wider than just technology companies. Companies that may fall within the tax charge will be spread across many industries. The tax rules have been drafted to exclude small and medium sized companies but multinationals could face the DPT at a rate of 25%.
Earlier this month, Diageo a FTSE 100 company issued a press release stating that it had been discussing its transfer pricing position and related issues with HMRC. Whilst these discussions were ongoing, Diageo was notified that HMRC intends to issue preliminary notices of assessment under the DPT regime. Diageo does not believe it is within the scope of the DPT and will fight this claim. However, under the legislation, the company is required to pay the enormous sum of £107 million demanded by HMRC up front and only then are they able to enter into discussions of whether this was justified.
It is expected to be at least a year before a resolution is reached although Diageo considers no provision is required in relation to the DPT. It will be interesting to see how this case develops and if any other company’s tax affairs are publicised in this way. HMRC refused to comment on the case.