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Diverted Profits Tax – Budget 2015 update

On Wednesday, Chancellor George Osborne confirmed in the final pre-election Budget that the UK will indeed go ahead with its controversial Diverted Profits Tax (DPT), effective 1 April 2015. The new charge (levied at 25%) is purported to be aimed at tackling aggressive international tax planning techniques used by large multinational corporations, but is likely to have far wider application.

The DPT has two charging provisions that apply to companies, which:

  1. design their activities to avoid creating a taxable presence (a permanent establishment) in the UK; or
  2. create a tax advantage by using entities or transactions that lack economic substance.

The draft DPT legislation was released by the Government in December 2014 gaining a mixed response from critics. Concerns have been raised about treaty override, the broad notification requirements and its compliance with the OECD’s Base Erosion and Profit-Shifting (BEPS) project to name but a few.

Osborne disappointingly said little about our concerns and the revised DPT legislation in the Budget, leaving us all waiting in suspense for a few more days until the updated legislation is published next week.

Perhaps what is most frightening about this new tax is that it will be effective in just 10 days. This gives taxpayers, HMRC and professionals an extremely short window to digest and apply a new law that has had limited scrutiny from Parliament. Calls to delay the introduction of the DPT have been ignored by the Coalition and it looks like we will be stepping into a rather uncertain temporary future come the first of April.

The next few weeks

Throughout April we will share with you our thoughts and analyses as to how the DPT will apply to certain businesses and what action to take now, including:

  • UK property developments
  • Principal/Manufacturer/Distributor structures
  • E-Commerce businesses
  • ‘Op Co/Prop Co’ structures commonly used in the hospitality, healthcare and retail industries.

IBC’s Diverted Profits Tax Conference 2015

Our very own Zoe Wyatt and Miles Dean will be speaking at the IBC’s Diverted Profits Tax Conference 2015 on 21 April 2015 alongside Philip Baker QC, Timothy Lyons QC and Jonathan Schwarz to discuss all aspects of the DPT. Zoe and Miles will be presenting on the restructuring options for multinational groups in light of the new provisions.

Zoe recently prepared a short article for Lexis Nexis on the mechanics of the new rules. Download Here

March 20, 2015

Zoe Wyatt

Posted by Zoe

Zoe is a Partner at Milestone, she brings extensive knowledge of international tax systems with a special interest in double tax treaties, exploitation of IP and the role of EU law.

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