The Chartered Institute of Taxation (CIOT) welcomes HMRC’s approach to businesses they suspect of breaking the rules on the Diverted Profits Tax (DPT). But the CIOT is concerned that the need for the new facility indicates a tax system that is under strain, and placing increasing burdens on taxpayers.
HMRC are setting up a compliance facility to encourage multinational enterprises to look again at their potential to be charged to the Diverted Profit Tax – sometimes referred to as the ‘Google tax’- to amend their Transfer Pricing policies accordingly, and pay any tax that may be due.
Glyn Fullelove, Chair of the CIOT’s Technical Committee, said:
“We welcome this sensible proposal to try to sort out efficiently what could otherwise be many disputes between companies and HMRC which could take years to settle. We are pleased that the guidance from HMRC suggests that the new facility should be used only by those who may have liabilities and it should not be used by those who have been diligent in reviewing transfer pricing policies. This should avoid companies using the facility ‘just in case’.”
HMRC are introducing the new Profit Diversion Compliance Facility for multinational companies using arrangements targeted by DPT to give them the opportunity to bring their UK tax affairs up to date. The new facility is designed to encourage the multinational businesses with arrangements that might fall within its scope to review both the design and implementation of their transfer pricing policies, change them if appropriate, and use the facility to put forward a report with proposals to pay any additional tax, interest and where applicable, penalties due. Adjustments will normally be made to corporation tax liabilities, rather than DPT being charged. Written guidance published yesterday (10) sets out what HMRC would expect to see in such a report.
This is just one development in a wider digital/multinational tax context, including the offshore royalties changes in the current Finance Bill, the UK’s proposed Digital Services Tax and even some recent transfer pricing developments around financial transactions.
Glyn Fullelove said:
“The DPT has come a long way from affecting ‘only a handful’ of companies which was what was expected when it was first announced.
"Recent developments in the taxation of digital and multinational enterprises are driving towards a situation in which some tax returns are so complex and depend to such a degree on subjective assessments, that taxpayers will feel they have to commission a detailed audit of the return from a ‘big four’ accountancy firm, or similar provider, before submission, to assure themselves it is correct. In turn, we are concerned the only way tax authorities can be satisfied these tax returns are correct is to rely on such supporting reports because they do not have the resources to review all such returns themselves. Any return without such a report will be seen as high risk. This situation will be very costly for corporate taxpayers. Furthermore, it is questionable whether a system that relies on such outsourcing, partially at least in place of tax authority review, is satisfactory, even though we are sure the reports would be produced to the highest technical and professional standards. It would be better for this to be a matter of public debate rather than drifting to this outcome as a default."
Notes for editors
1. The Diverted Profits Tax was introduced in Finance Act 2015. The main objective of the Diverted Profits Tax is to counteract contrived arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base.
2. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
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