Clifford Chance

The diverted profits tax: will it work in practice, and is it contrary to EU law?

1 June 2015

As of 1 April 2015, the new UK diverted profits tax (DPT) can apply to foreign companies doing business with the UK, and UK companies entering into arrangements with non-UK affiliates.

Our client briefing set out how the DPT works. We have since written a paper examining the key design features of the DPT, and concluding that design is fundamentally flawed. The DPT is so widely drafted it will create uncertainty and compliance cost for many straightforward commercial arrangements; however, at the same time, it is unclear it is technically capable of taxing the very arrangements it was created to counter. Furthermore, on the basis of established caselaw, it is in our view doubtful the DPT would survive EU law challenge.

The paper "The diverted profits tax: flawed by design" is attached.

"The diverted profits tax: flawed by design?" was first published by Sweet & Maxwell in British Tax Review, Number 2 2015, and is reproduced by agreement with the Publishers.

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