Diverted Profits Tax Calculator
Estimate UK Diverted Profits Tax (DPT) exposure for large multinationals using artificial arrangements to avoid creating a UK taxable presence or to exploit tax mismatches. DPT rate is 31% from April 2023.
Frequently Asked Questions
What is the UK Diverted Profits Tax?
DPT (Finance Act 2015) targets large multinationals that use contrived arrangements to either: (1) avoid creating a UK permanent establishment, or (2) exploit tax mismatches — arrangements where payments reduce UK profits but the receipts are effectively untaxed or low-taxed offshore.
What is the DPT rate?
DPT is charged at 31% (increased from 25% in April 2023). This rate is deliberately higher than Corporation Tax (25%) to create a strong incentive to correct diverted profits rather than pay DPT.
Who does DPT apply to?
For the 'avoided PE' provision: foreign companies with UK-connected activities where the arrangement lacks economic substance. For the 'mismatch' provision: UK companies with connected party arrangements generating tax benefits through mismatches. Both provisions require involvement of companies with UK turnover exceeding £10m or profits exceeding £1m.
How does DPT differ from transfer pricing?
Transfer pricing adjusts the price of transactions between related parties. DPT applies where there is no taxable transaction to adjust — for example, where a foreign company is deliberately structured to have no UK permanent establishment despite substantial UK economic activity.
How does HMRC charge DPT?
Unlike CT, companies cannot self-assess DPT. HMRC issues a 'preliminary notice' allowing 30 days to respond, followed by a 'charging notice'. Companies have a further 30-day review period in which they can agree to restructure or pay the charge. After charging, the charge stands for 12 months before the company can appeal.
Can companies avoid DPT by changing their structure?
Yes — DPT encourages companies to restructure to avoid the diverted profits. If a company accepts that it has an avoided PE and voluntarily files UK CT returns, DPT does not apply. The threat of DPT has encouraged many multinationals to register UK branches or accept CT liability.
Is DPT deductible for CT purposes?
No — DPT is not deductible against UK Corporation Tax. This further increases the effective tax cost of arrangements caught by DPT, making compliance more attractive than challenge.
How does Pillar Two affect DPT?
The global minimum tax (Pillar Two, effective 2024) may reduce DPT exposure for groups subject to both regimes, as Pillar Two top-up taxes already address some low-tax arrangements. However, DPT and Pillar Two target different scenarios, so both can apply.