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Diverted profits tax
Practical Law UK Glossary 3-595-6825 (Approx. 2 pages)
Glossary
Diverted profits tax
The diverted profits tax is designed to counter multinational enterprises entering into arrangements to divert profits from the UK, thereby reducing their UK corporation tax liability. Broadly, the tax may arise in two circumstances:
- A UK resident company (or a UK permanent establishment of a non-UK resident company) enters into arrangements with a related person where that person or the transaction(s) lack economic substance resulting in a reduction of the UK company's (or UK permanent establishment's) taxable profits.
- A person (whether or not UK resident) carries on an activity in the UK connected to the supply of goods, services or other property made by a non-UK resident company in the course of its trade in a way that avoids creating a UK permanent establishment.
It applies for accounting periods beginning on or after 1 April 2015 at a rate of 25% (for straddle periods, diverted profits are apportioned on a just and reasonable basis). For further details, see Practice note, Diverted profits tax.