HMRC introduce a new facility to empower taxpayers with incorrect or out-of-date transfer pricing to bring their tax affairs up to date.
Despite the introduction of the Diverted Profits Tax (DPT) in 2015, HMRC maintain that there remain a large number of taxpayers with tax arrangements that are not consistent with the OECD’s response to BEPS Actions 8-10 (which required Transfer Pricing Outcomes to be in line with value creation). Therefore, HMRC have developed the Profit Diversion Compliance Facility to encourage taxpayers to make the necessary changes to their transfer pricing policies (and pay any historical tax, interest or penalties due) to bring their tax affairs up-to-date in a speedy, collaborative and controlled manner.
What is the Facility?
The Facility gives multinationals with high-risk transfer pricing or DPT arrangements the opportunity to bring them into line with UK legislation without prompting by HMRC. Although the Facility is primarily targeted at taxpayers with arrangements potentially subject to DPT, this is not a prerequisite nor is an analysis of whether DPT applies. Businesses will have the opportunity to register with HMRC, six months after which they will be required to submit a report setting out proposed historical liabilities and go-forward transfer pricing arrangements.
Who is affected?
Any taxpayer demonstrating ‘profit diversion’ risks is affected. These may include taxpayers with the following indicators:
HMRC have indicated that taxpayers it considers ‘high risk’ may receive a ‘nudge’ letter. Recipients of such letters will be strongly encouraged to take advantage of the Facility or risk an HMRC investigation. Taxpayers that do not receive such a letter should not take this to mean that HMRC will not enquire.
Why should businesses consider the Facility?
If businesses make a full and accurate disclosure, pay those liabilities and fully cooperate, HMRC will not start an investigation into potential DPT or corporation tax liabilities. This gives rise to two major benefits, notably:
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