Where HMRC believes that DPT may be due, it first issues a preliminary notice, which may be followed by a charging notice setting out the amount of DPT to be paid by the company within 30 days.

According to its statistics, no preliminary or charging notices were given out in 2015/16, but in 2016/17 HMRC issued 16 DPT preliminary notices and 14 DPT charging notices.

HMRC says the DPT, which was introduced on 1 April 2015, produced £31m in 2015/16 and £281m in 2016/17. This yield includes both the amounts received as a result of DPT charging notices, and additional amounts of corporation tax collected from businesses which have changed their behaviour because of the introduction of DPT.

At the March Budget 2015 the anticipated Exchequer impact of DPT was £25m in 2015/16 and £275 m in 2016/17, comprising DPT receipts and additional corporation tax arising from behavioural change.

In its 2017 annual report, Diageo revealed it is challenging a £107m assessment from HMRC under the DPT regime for the financial years ended 30 June 2015 and 30 June 2016, and has entered into a process of collaborative working with HMRC to seek clarity on its transfer pricing and related issues. These discussions are ongoing.

HMRC received 48 notifications from companies of arrangements that potentially fall within the scope of the DPT legislation in 2015/16, which almost tripled to 145 notifications the following year. The obligation to notify does not necessarily mean that a DPT charge will arise.

Heather Self, partner at law firm Pinsent Masons, said: ‘The amount raised from charging notices is high at £138m which has ramped up overall yield. This suggests that there may be some significant notices which companies have not yet made public.

‘Also, HMRC appears to be counting “yield” as soon as there is a charging notice – which triggers payment of the tax, but does not mean the dispute has been settled. A number of companies may well secure reductions in the amount charged during the review period.’

Self is predicting ‘significantly more’ charging notices being issued  next year, as many companies have 31 December year ends and the deadline for notices for the period ended 31 December 2015 is 31 December 2017.

Transfer pricing

The statistics show that in the years from 2011/12 to 2016/17 HMRC secured £5.9bn of additional tax by challenging the transfer pricing arrangements of multinationals. Of this, the largest amount (£1.6bn) was collected in 2016/17 and includes some transfer pricing changes created as a result of companies receiving DPT notices.

However, the timescales for resolving disputes have lengthened in recent years.

Self said: ‘Transfer pricing disputes are taking HMRC nearly two-and-a-half years to settle – a year longer than its internal target. This is creating a serious backlog.

‘Businesses are being bogged down for up to five years in some cases, as HMRC’s internal targets count from the time an enquiry is opened, which is typically up to two years after the transactions.’

Over the same period, HMRC has accepted 265 advance pricing agreement (APA) applications but only agreed 166 and the average time to reach an agreement now stands at 32.8 months, compared to 16.9 months five years ago.

Self said: “APAs give certainty which is much valued by businesses and also helps HMRC use their resources efficiently. Again, it is disappointing that HMRC is falling behind on approving these agreements.

‘There is a build-up of APAs waiting to be approved stretching back to 2013 and it’s already taking almost 3 years to agree them. Certainty requires timeliness, otherwise its value diminishes.’

Transfer Pricing and Diverted Profits Tax statistics, to 2016/17 is here.

Report by Pat Sweet