Diverted Profits Tax (DPT) - often called the 'Google Tax' - is a punitive tax targeting multinational enterprises that artificially divert profits away from the UK. If your business has significant UK operations but routes profits through low-tax jurisdictions using contrived arrangements, you may be liable for DPT at 31% - deliberately set above the standard Corporation Tax rate.

DPT was introduced by the Finance Act 2015 to counter aggressive tax planning by multinationals. Unlike Corporation Tax, DPT is not self-assessed - HMRC issues charging notices after investigating potentially liable arrangements.

Who needs to know about DPT?

DPT primarily affects:

UK subsidiaries of foreign multinationals with transactions involving connected overseas entities
Foreign companies with significant UK sales that avoid establishing a UK taxable presence
UK companies entering arrangements with low-substance foreign affiliates
Groups using intellectual property holding structures in low-tax jurisdictions

DPT does not apply to smaller businesses - exemption thresholds exclude companies with limited UK activity from the charge.

Diverted Profits Tax rates and thresholds

DPT rates applicable to multinational enterprises avoiding UK taxable presence or diverting profits through contrived arrangements.

Diverted Profits Tax (DPT) targets multinational enterprises that artificially divert profits from the UK using contrived arrangements or by avoiding a UK taxable presence. Introduced by Finance Act 2015, the rate was increased in 2023 to maintain its punitive differential above Corporation Tax.

Standard DPT rate (from April 2023): 31%
Previous DPT rate (April 2015 - March 2023): 25%
Ring fence profits rate (oil and gas): 55%
Banking surcharge DPT rate: 33%
UK turnover threshold (foreign companies): £10,000,000 - exceeding this may trigger DPT if avoiding UK taxable presence
Notification deadline: 3 months after end of accounting period
Payment deadline: 6 months after end of accounting period
Failure to notify penalty (non-deliberate, minimum): 20% of potential lost revenue (Schedule 41 FA 2008)

When DPT applies:

Avoided PE: Foreign company with UK-related sales over £10m arranges activities to avoid UK permanent establishment
Entity mismatch: UK company enters transactions lacking economic substance with associated entities, diverting profits

Key difference from Corporation Tax: DPT is charged by HMRC issuing a charging notice, not self-assessed. HMRC can charge DPT even where no CT return has been filed.

2026 reform: DPT is being reformed and integrated into corporation tax from 1 January 2026, creating a new mechanism for taxing unassessed transfer pricing profits at the 31% rate.

Diverted Profits Tax guidance

The two DPT charging scenarios

DPT can apply in two distinct circumstances. Understanding which scenario might affect your business is essential for compliance planning.

DPT charging scenarios - avoided PE and mismatch arrangements

The two scenarios that trigger Diverted Profits Tax liability - avoiding UK taxable presence and entity mismatch arrangements.

Diverted Profits Tax applies in two distinct scenarios, both targeting arrangements that artificially divert profits away from the UK.

Scenario 1: Avoided Permanent Establishment (Section 86, Finance Act 2015)
Scenario 1 target: Foreign companies arranging activities to avoid creating a UK taxable presence while having significant UK-related sales
Scenario 1 triggers: Foreign company with £10m+ UK-related sales AND activities arranged to avoid UK PE AND tax advantage obtained
Scenario 2: Mismatch arrangements (Section 81, Finance Act 2015)
Scenario 2 target: UK companies or UK PEs entering transactions with connected entities lacking economic substance
Scenario 2 triggers: Transaction with connected person AND insufficient economic substance AND effective tax mismatch created

Avoided PE (Section 86): Targets non-UK resident companies that avoid creating a UK permanent establishment despite significant UK activity. Applies where a non-UK company supplies goods/services to UK customers, uses a connected UK person to facilitate sales, and the arrangement is designed to avoid UK tax.

Mismatch arrangements (Section 81): Targets transactions between a UK company (or UK PE) and a connected entity where the transaction lacks economic substance and creates a tax mismatch. The 'effective tax mismatch' test compares UK tax reduction against tax paid elsewhere.

Insufficient economic substance: HMRC assesses whether the contribution made by staff of the foreign entity is commensurate with the profit allocated to it. If staff functions and decision-making are insufficient relative to profits, the arrangement lacks economic substance.

DPT - Avoidance of UK taxable presence (avoided PE)

DPT exemption thresholds - small amounts rule

Exemption thresholds that exclude smaller businesses from DPT - under £10 million UK sales or under £1 million UK expenses.

DPT includes a 'small amounts' exemption that excludes businesses with limited UK activity from the charge. This ensures DPT targets genuinely significant profit diversion by large multinationals, not smaller cross-border arrangements.

UK sales exemption threshold: £10,000,000 - if UK-related sales revenue is below this, avoided PE rules do not apply
UK expenses exemption threshold: £1,000,000 - if UK-related expenses are below this, mismatch rules do not apply
How thresholds apply: Either threshold being met provides exemption from the relevant DPT scenario
Avoided PE scenario: Requires £10m+ UK-related sales to be in scope
Mismatch scenario: Requires £1m+ UK-related expenses to be in scope
Aggregation rules: Connected companies' activities may be aggregated when assessing thresholds

UK-related sales revenue: For the avoided PE test, this includes sales of goods or services to UK customers, whether or not the selling company has a UK presence. It covers direct sales and sales facilitated through connected persons.

UK-related expenses: For the mismatch test, this includes expenses incurred by the UK company or UK PE on transactions with connected entities. The £1m threshold relates to the specific arrangement, not total UK expenses.

Planning point: Businesses approaching these thresholds should monitor their UK activity carefully. Exceeding thresholds does not automatically mean DPT applies - the substantive tests (avoided PE or mismatch) must still be met.

DPT exemptions and thresholds

Notification requirements

If you believe DPT may apply to any arrangements in your accounting period, you have a statutory obligation to notify HMRC. Failure to notify can result in significant penalties.

DPT notification and reporting requirements

Notification deadlines and reporting obligations for companies potentially liable to Diverted Profits Tax.

Companies that may be liable to DPT have specific notification obligations to HMRC. The notification requirement is separate from Corporation Tax returns and must be made within 12 months of the accounting period end.

Notification deadline: Within 12 months after the end of the accounting period
Who must notify: Companies that may be liable to DPT and are not already disclosing under Corporation Tax arrangements
Notification method: Written notification to HMRC Counter-Avoidance Directorate
Information required: Details of arrangements, parties involved, profits diverted, and relevant accounting periods
CT600 disclosure: Companies must also indicate DPT exposure on their Corporation Tax return where relevant
Failure to notify penalty (minimum - non-deliberate): 20% of potential lost revenue
Failure to notify penalty (maximum - deliberate and concealed): 100% of potential lost revenue

Reasonable excuse: No penalty is due if the company had a reasonable excuse for failure to notify. This does not include reliance on another person or insufficient funds to pay the penalty.

Disclosure reduces penalties: Unprompted disclosure (before HMRC enquiry) can reduce penalties to 0-30% (non-deliberate) or 20-70% (deliberate but not concealed). Prompted disclosure after HMRC enquiry attracts higher penalties.

DPT notification requirements

The HMRC charging process

Unlike Corporation Tax, you cannot self-assess DPT liability. Instead, HMRC investigates and issues charging notices through a formal process. You have the right to make representations before any charge is finalised.

DPT preliminary notice and charging process

How HMRC issues DPT charging notices, the preliminary notice process, and company rights to make representations.

DPT is not self-assessed like Corporation Tax. Instead, HMRC issues charging notices after a preliminary notice and representations process. This gives companies an opportunity to challenge HMRC's assessment before a formal charge is made.

Step 1: HMRC issues preliminary notice stating DPT may be due
Preliminary notice deadline: Within 24 months of the end of the accounting period
Step 2: Company may make representations within 30 days
Representations period: 30 days from date of preliminary notice (extendable by agreement)
Step 3: HMRC issues charging notice (or decides not to)
Charging notice deadline: Within 30 days of end of representations period
Step 4: DPT payable within 30 days of charging notice
HMRC review period: HMRC has 12 months from charging notice to review the charge
Appeal route: Appeal to First-tier Tribunal within 30 days of final determination

Payment before appeal: Unlike Corporation Tax, DPT must be paid within 30 days of the charging notice even if the company intends to dispute the charge. The company can recover overpaid DPT after review or successful appeal.

HMRC review: During the 12-month review period following a charging notice, HMRC may amend the charge (up or down) if new information emerges. The company can also provide additional information during this period.

Corporation Tax interaction: If DPT is charged on profits that could alternatively be subject to Corporation Tax, HMRC may allow a corresponding CT adjustment. The company cannot be taxed twice on the same profits.

DPT preliminary notice process

Assess whether DPT scenarios apply

Review your group structure and inter-company arrangements against the two DPT scenarios. For avoided PE, consider whether foreign group companies have significant UK sales without a UK taxable presence. For mismatch arrangements, assess whether transactions with connected entities have sufficient economic substance.
Check against exemption thresholds

Calculate your UK-related sales revenue (for avoided PE) and UK-related expenses with connected entities (for mismatch). If below £10m sales and £1m expenses respectively, document this position and monitor for changes.
Review economic substance of arrangements

For any potentially in-scope arrangements, ensure foreign entities have genuine economic substance - appropriate staff, decision-making capability, and functions commensurate with the profits allocated to them.
Notify HMRC if required

Within 12 months of your accounting period end, notify HMRC if you believe DPT may apply. Notification should be in writing to the Counter-Avoidance Directorate with details of arrangements, parties, and relevant periods.
Respond to preliminary notices

If you receive a preliminary notice from HMRC, you have 30 days to make representations. Gather evidence of commercial rationale and economic substance. Engage tax advisers experienced in DPT matters.
Plan for the 2026 reform

DPT is being integrated into Corporation Tax from 1 January 2026. Review how this reform will affect your compliance processes and transfer pricing documentation.

Relationship with Corporation Tax

DPT is designed as an alternative to Corporation Tax for diverted profits, not an additional charge on the same profits. Key interactions:

No double taxation: If DPT is charged on profits, HMRC may allow a corresponding CT adjustment to avoid taxing the same profits twice
Higher rate: The 31% DPT rate exceeds the 25% main CT rate, creating a deterrent effect
Different process: CT is self-assessed; DPT is charged by HMRC following investigation
Payment timing: DPT must be paid within 30 days of a charging notice, even if disputed - unlike CT which can be deferred pending appeal in some circumstances

2026 reform - DPT integration into Corporation Tax

From 1 January 2026, DPT is being reformed and integrated into the Corporation Tax framework. This means:

Transfer pricing mechanism: The existing transfer pricing rules will be strengthened to achieve similar outcomes to DPT
31% rate retained: Unassessed transfer pricing profits will be taxed at 31% - maintaining the punitive differential
Self-assessment: The reformed rules will likely require companies to self-assess liability, rather than waiting for HMRC charging notices
Simplified compliance: Integration should reduce administrative complexity of having separate DPT and CT regimes

Planning point: Review your transfer pricing documentation and policies before 2026 to ensure they meet the enhanced requirements of the integrated regime.

Practical compliance for multinational businesses

Annual review process:

Include DPT assessment in your annual tax compliance calendar
Review all significant inter-company transactions for substance and rationale
Document the commercial purposes of arrangements - not just tax efficiency
Ensure transfer pricing documentation supports arm's length pricing
Monitor UK activity against exemption thresholds

Red flags that attract HMRC attention:

High UK sales but minimal UK taxable profit
IP held in low-tax jurisdictions with limited local staff
Commissionaire or limited risk distributor arrangements
Significant royalty or service fee payments to low-substance affiliates
Arrangements restructured shortly before DPT introduction (April 2015)

Documentation to maintain:

Transfer pricing reports supporting inter-company pricing
Evidence of commercial rationale for group structure
Records of staff functions and decision-making in each entity
Board minutes evidencing genuine management in relevant jurisdictions
Contracts and functional analyses for inter-company arrangements

Business Context Testing

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Guvnor

Diverted Profits Tax for multinationals

Who needs to know about DPT?

The two DPT charging scenarios

Notification requirements

The HMRC charging process

Assess whether DPT scenarios apply

Check against exemption thresholds

Review economic substance of arrangements

Notify HMRC if required

Respond to preliminary notices

Plan for the 2026 reform

Relationship with Corporation Tax

2026 reform - DPT integration into Corporation Tax

Practical compliance for multinational businesses

Compliance Assistant

🧪 Business Context Testing

◉ Content Graph

Who needs to know about DPT?

The two DPT charging scenarios

Notification requirements

The HMRC charging process

Assess whether DPT scenarios apply

Check against exemption thresholds

Review economic substance of arrangements

Notify HMRC if required

Respond to preliminary notices

Plan for the 2026 reform

Relationship with Corporation Tax

2026 reform - DPT integration into Corporation Tax

Practical compliance for multinational businesses

Related guides in Tax & Finance

Business Context Testing

Content Graph