HMRC has today launched a new initiative, the Profit Diversion Compliance Facility, the details of which can be found on HMRC’s website. The PDCF is aimed at multinationals using arrangements targeted by DPT who are not currently under a DPT or TP enquiry.
The new Facility is designed to encourage businesses potentially impacted to review their tax policies, change them as appropriate and use the Facility to submit a report with a proposal to pay any additional tax, interest or penalties due. This would enable them to bring their tax affairs up to date efficiently and without intervention from HMRC. The preparation and submission of a report will allow a business to manage its own internal processes as to what evidence to gather, who is interviewed, what comparables are used, and how the analysis is presented. HMRC would then choose whether to accept the proposal without further enquiry.
HMRC has identified a number of businesses which they think display the hallmarks of “profit diversion”. As part of this new initiative, HMRC will be issuing tranches of letters “inviting” them to register for the Facility. The Facility will also be open to businesses if they have not yet received a letter. HMRC has told us that they expect to open enquiries into those that do not respond to their letter.
Overall this change in approach is interesting because of what it says about HMRC’s plans for enquiries going beyond Transfer Pricing to cover a much wider range of corporate tax issues. As we have seen with Transfer Pricing enquiries, HMRC intend these to be much more forensic in nature with a focus on substance and the evidence available at the time a return was filed or documentation prepared.