In 2019, HMRC announced the introduction of a “Profit Diversion Compliance Facility” (PDCF). In very basic terms, the PDCF is targeted at multinational groups with arrangements to which HMRC thinks diverted profits tax (DPT) should apply, but has not yet had the time or resources to investigate. The PDCF provides an opportunity for groups with relevant arrangements to, effectively, investigate themselves and provide HMRC with a report summarising their factual findings and technical analysis, plus a proposal for any additional tax and interest that might be payable as a result. Those who participate can avoid an HMRC investigation in relation to the relevant arrangements, and potentially benefit from reduced penalties.
Groups assessed by HMRC as high risk have previously received “nudge” letters from HMRC suggesting that they consider registering for the PDCF. Around two thirds of those receiving nudge letters to date have registered for the PDCF and a significant number of cases have now been through the PDCF process and reached a negotiated settlement. The fifth wave of nudge letters is expected to be sent out by HMRC shortly. Groups receiving these letters should expect an HMRC investigation if they do not register.
More detail on the arrangements that HMRC considers likely to be within scope, the design of the PDCF and the requirements of the report can be found here. This guidance is due to be updated to reflect some of the learnings to date and some updates in practice.
We would be very happy to discuss any aspect of the PDCF, as well as HMRC’s approach to DPT more generally. Please contact Helen Buchanan or Sarah Bond from our award-winning tax disputes team*.
*International Tax Review’s UK Tax Disputes Firm of the Year 2021