HMRC has launched a new Profit Diversion Compliance Facility (PDCF), intended to encourage multinationals with arrangements potentially within the scope of DPT, to review their historic transfer pricing and submit a report and settlement proposal for any additional UK tax and interest. The facility is only open to taxpayers whose arrangements are not already under enquiry.
In our recent experience of HMRC's diverted profits and transfer pricing enquiries, few close without an increase in the UK profit return. This facility is aimed at offering an opportunity for multinationals to bring the group's UK transfer pricing in line with HMRC's post-BEPS expectations, avoiding the intrusion and cost associated with a detailed HMRC investigation. This may provide certainty for taxpayers over their past positions and comfort that further risk has been mitigated.
The facility shifts the burden of investigation to the business in return for an accelerated, lighter-touch process by HMRC. No special penalty protection is offered, but multinationals that register for the facility can benefit from a reduction down to zero, of penalties for the unprompted disclosure of careless inaccuracies. Further, deliberate defaulters that come forward can avoid being named and shamed.
HMRC will be issuing cautionary letters to high-risk multinationals alerting them to the facility and inviting them to consider registering. Multinationals that receive a letter and do not register will likely be subject to an HMRC investigation. We understand that such investigations are likely to be led by HMRC's Fraud Investigation Service (FIS). HMRC has not committed to sending letters to all multinationals identified as high risk and may instead launch an investigation without prior warning. Therefore, multinationals should not wait for a letter before considering whether to use the PDCF.