INTM630540 - Royalty Withholding: UK Source: Interaction with Diverted Profits Tax: Relief if amount included in relevant taxable income of a connected party

The general rule in FA15/S100(2A) is modified by FA15/S100(4B). This subsection provides relief where a royalty payment has been included in the calculated of notional PE profits and in the calculation of the relevant taxable income of a connected party. Relief is given by a credit equivalent to the amount of DPT arising on the payment included in notional permanent establishment profits by FA15/S88(5)(b) that is included in the calculation of the connected party’s relevant taxable profits. This prevents double-counting of the payment in arriving at notional permanent establishment profits.

Example

Notional PE profits for the period include a royalty payment under FA15/S88(5)(b) of £100m. £80m of this payment is deemed to have been made to a connected party and so is included in the relevant taxable income of that connected party.

To prevent the £80m being included twice in calculating profits for DPT, a credit of the company’s liability on that payment (£80m x 25% = £20m) is provided against the company’s total DPT liability.