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Diverted profits tax

D2.702 Diverted profits tax—overview

[For additional key resources on this topic see 'Diverted profits tax—related content' below.]

The diverted profits tax (DPT) was introduced by Finance Act 2015¹ with the stated objective of the tax being to counteract contrived arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base.

The tax (nicknamed the 'Google tax') was introduced amid increasing media and political focus on perceived tax avoidance by large multinational companies and represents a radical departure from the principle that the UK will not tax the profits of foreign companies doing business in the UK unless they have a UK permanent establishment.

Broadly, DPT operates in one of two ways. Firstly, it prevents companies from creating tax advantages by using transactions or entities that lack economic substance. Secondly, it counteracts arrangements by which foreign companies exploit the permanent establishment rules.

The DPT applies for accounting periods beginning on or after 1 April 2015;