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D2.707 Lacking economic substance—liability to diverted profits tax

Broadly, DPT operates in one of two circumstances (see D2.702). The first main head of charge targets companies which are considered to have diverted profits from the UK by involving entities or transactions lacking economic substance. The DPT charge under the 'lacking economic substance' heading can apply to both UK resident companies and non-resident companies that have a UK permanent establishment. It should be noted that it does not apply though where both parties to the transaction(s) are small or medium sized enterprises (D2.708)¹.

The detailed conditions that must be met are set out in the legislation and broadly comprise the following²:

1. Ìý

   (a)ÌýÌýÌýÌý the company (C) is UK resident, or a non-UK resident company trading in the UK through a PE such that if it were treated as UK resident standalone company it would meet conditions (b) to (e)

2. Ìý

   (b)ÌýÌýÌýÌý provision has been made by means of a transaction(s)³ between C and another person (P), who may be resident