INTM489866 - Diverted Profits Tax: customer engagement with HMRC: how Advance Pricing Agreements in force at 1 April 2015 interact with Diverted Profits Tax

For existing APAs which cover periods from 1 April 2015 (when DPT comes into force) the interaction with DPT will depend on the terms of the APA, in particular the nature of the covered transaction, and the transactions which give rise to a possible DPT charge.

Each case will be considered on its own merits but, broadly speaking

• where DPT arises under section 86 from the avoidance of a UK PE then the existence of an APA for specified covered transactions should generally have no effect for the purpose of charging DPT. If a DPT charge arises in respect of an avoided UK PE, the charge will be based on profits that would have been attributable to a PE that are over and above the reward attributable to the UK entity(ies) that were subject to the transfer pricing agreement set out in the APA;
• a DPT charge would not normally arise under section 80 or section 81 in respect of covered transactions of an APA. A DPT charge will however always need to be considered if the rules relating to basing any DPT charge on the relevant alternative provision applied. A DPT charge may arise under section 80 or section 81 in relation to a non-covered transaction even if those transactions have been informally discussed during the course of negotiating the APA.