INTM489950 - Diverted Profits Tax: notification, charging and payment: controlled foreign companies charges

A DPT liability can arise in relation to a transaction or transactions with a controlled foreign company (CFC), although where the resulting material provision produces an effective tax rate mismatch outcome that is matched or exceeded by a CFC charge in the parent company in relation to that provision and it was known that the charge would arise at the time the provision was made or imposed, it’s unlikely that that the provision would have been designed to secure a tax reduction (see INTM489740). Where a DPT liability does arise, a company may be given a just and reasonable credit for any CFC charge (or a non-UK tax which is similar to a CFC charge) against that DPT liability where both the DPT liability and the CFC charge arise by reference to the same profits. But no credit can be given for a CFC charge which is paid after the end of the review period.

The DPT legislation is not designed to apply where a non-resident company, other than one that has a UK PE or an avoided PE, diverts profits to another non-resident company, but it is conceivable that such a company may be a CFC of a UK company and that the diversion of profits results in a liability to tax in the second non-resident company that is less than 80% of the CFC charge that would otherwise be payable by the UK parent company. Although this scenario is not addressed in the DPT legislation, if a company sought to employ such arrangements to avoid a liability to DPT HMRC would consider those arrangements to be potentially within the scope of the General Anti-Abuse Rule and would seek to apply it.