The Diverted Profits Tax was an entirely new tax levied on the UK and overseas companies on April 1, 2015. The DPT was initially proposed by the Chancellor of the Exchequer, George Osborne, in his Autumn Statement on December 3 2014, and the proposed legislation was released a week later. As stated by the Chancellor, the new move is intended to go after “multinationals who use artificial arrangements to shift profits elsewhere to avoid UK tax.” HMRC can recalculate the profits it believes are fair and reasonable to anticipate would have been made in the UK and subject to UK corporation tax if the supply chain hadn’t been structured to gain group tax savings. Diverted profits will be taxed 25%, 5% more than the UK corporation tax. 

The tax has been popularly referred to in the news as the “Google tax“, which will have a massive impact on the digital economy. However, the DPT has considerably more significant consequences for multinational corporations, regardless of whether their headquarters are located in the United Kingdom or elsewhere. The new tax may apply if there are transactions in the global supply chain using low-tax enterprises that lack economic substance or arrangements that serve the primary goal of avoiding a UK corporation tax charge. The new tax might result in double taxation for multinational firms headquartered in the UK or elsewhere that transact with, from, or through the UK. These ramifications include a wide range of industries, including consumer products, industrial and manufacturing, pharmaceuticals and life sciences, insurance and reinsurance, traders in the energy and commodities markets, EPC contractors, drilling firms, and oil and gas contractors, amongst many others.