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Potential modifications to diverted profits tax

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HM Treasury has suggested that the government may narrow the notification requirements of, and widen the exclusion for loan relationships for, the proposed diverted profits tax (DPT). The DPT, which was announced in the Autumn Statement in December, seeks to target multinational corporates which divert their profits away from the UK to low-tax jurisdictions by means of a 25% levy on those diverted profits.

Speaking at a recent Oxford University Centre for Business Taxation conference, Mike Williams, director for business and international tax at HM Treasury, said of the notification requirements: ‘There is no advantage in businesses putting together a lot of information which is sent to HMRC, [and] for HMRC look at [the information] and then decide there isn’t an issue.’ Under the current proposals, a company must notify HMRC within three months after the end of an accounting period if it potentially owes DPT for the period. Because of the particular rules for the notification requirement, in certain cases a company would still be required to notify HMRC even where DPT will not be applicable.

Williams also said the government is also considering modifications to DPT to avoid double taxation where another country’s CFC rules ‘operate higher up the chain than the company we are looking at’, and that the government is seeking to hear views on how to broaden the exception to DPT for loan relationships in ways that will not be abusive, adding that the government decided to exclude interest from DPT until the outcome of the OECD’s BEPS project relating to interest deductions is known – but that the UK should not have to wait for the completion of the entire BEPS project before starting to tackle tax avoidance. See the videos of conference presentations and accompanying slides.