INTM489595 - Diverted Profits Tax: application of Diverted Profits Tax: legislation – Finance Act 2015 – core provisions: section 80 - involvement of entities or transactions lacking economic substance - situation 1 - UK company

A UK resident company may incur a charge to DPT if it is party to an arrangement meeting the specific conditions set out in section 80. The rules operate by reference to the concept of “provision”, which is consistent with the description of “provision” in the transfer pricing rules at Part 4 TIOPA 2010 (see INTM412050). The provision must be made or imposed between a UK resident company and another person (P). There is no requirement that this other person is a company. “Person” is defined further in INTM412030, but can include a partnership, or limited liability partnership.

The conditions set out in section 80 are that:

• there is a company (C) that is UK resident and another person (P) whether or not UK resident;
• provision (“the material provision”) has been made or imposed as between C and P by means of a transaction or series of transactions (INTM489600);
• C and P are connected in accordance with the participation condition (INTM489725);
• the material provision must result in “an effective tax mismatch outcome” between C and P (INTM489740);
• the effective tax mismatch outcome is not an excepted loan relationship outcome (INTM489605);
• the “insufficient economic substance condition” is met (INTM489765);
• C and P are not both small or medium-sized enterprises within the definition of section 172 TIOPA 2010 (INTM412080) (INTM489610).