UK and International Tax news

HMRC Introduces Profit Diversion Compliance Facility

Tuesday 15th January 2019

HMRC has announced that it is introducing a new Profit Diversion Compliance Facility for MNEs using arrangements targeted by DPT to give them the opportunity to bring their UK tax affairs up to date.

HMRC recognises that many MNEs operate transfer pricing policies to achieve compliance with the OECD TP Guidelines, regularly review and update their policies, and discuss them with HMRC during business risk reviews and at other times. If an MNE is confident that their transfer pricing is up to date and they are paying the right amount of corporation tax, they should not use the new compliance facility.

The new facility is designed to encourage the MNEs with arrangements that might fall within its scope to review both the design and implementation of their TP 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.

According to HMRC, this will:

  • enable MNEs to bring their tax affairs up to date openly, efficiently and without investigation by HMRC if a full and accurate disclosure is made;
  • give them certainty for the past and a low risk outcome for profit diversion in the future;
  • provide an accelerated process, HMRC will aim to respond to the proposal within 3 months of submission;
  • allow the MNE to manage its own internal processes around what evidence to gather, who is interviewed, what comparables are used (if any), and how the analysis is presented, and
  • give unprompted penalty treatment if HMRC has not already started an investigation into profit diversion with notification to HMRC by 31 December 2019 for some MNEs.

HMRC’s guidance sets out what it would expect to see in such a report.

The review of the arrangements should be proportionate to the scale and complexity of the business, the extent of tax at risk, the cause of any inaccuracies and failures to notify, and the proposals. The report should be free standing and self-explanatory.

While it will be the responsibility of the MNE to review its arrangements and make a disclosure, HMRC is prepared to meet with MNEs who register to use the facility at the outset of the process to discuss plans for the review and later again before the final report and proposal is submitted, so that the MNE can present its findings and conclusions and hear any comments from HMRC.

This work will be a priority for HMRC and a specifically designated, experienced team of specialists will risk assess all reports when received and consider whether the facts described and conclusions reached are soundly based on appropriate evidence, and if the TP policy and methodology adopted is reasonable and consistent with the OECD TP Guidelines.

HMRC expects to be able to accept most proposals if they take account of this guidance and reflect the principles in it.

Even if HMRC cannot accept the proposals as first presented, the report should provide a good basis for quick and efficient resolution, through dialogue, of particular differences of view between HMRC and the MNE.

While the facility is aimed at arrangements targeted by DPT, businesses do not need to provide a technical analysis of whether DPT applies if they consider that their proposals eliminate any profit potentially chargeable to DPT.

All technical analysis and any payment made can be on a without prejudice basis.

HMRC will not regard the making of a proposal as indicating that the MNE thinks DPT could, or should, apply.

 

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.

 

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