HMRC announce new compliance facility targeting captives

Announced shortly before the general election in 2015, the  Diverted Profits Tax (DPT) which was a thinly disguised attempt to demonstrate to the public that the Government was getting tough on multinationals who appeared to be paying less than their fair share of tax. The ‘Google tax’, as the media dubbed it was heralded as the UK’s answer to international tax avoidance and unacceptable transfer pricing by large multinational groups. HMRC published examples specifically concerning captive insurance companies and made it clear that it considered that some structures were likely to fall within the rules.

So what has happened now?

Well, the Government is targeting those groups it they believe exhibit DPT risk features but who have not notified them that they are within the scope of the tax. It is doing this by undertaking sophisticated profiling of businesses to identity those who fit the profile of a taxpayer that might have a DPT liability. The Government will then send a letter suggesting that the group might want to take advantage of a new disclosure facility, self-assess their liabilities and pay the tax with the incentive of reduced penalty consequences.
What to do now

Those receiving a letter have a choice – ignore it (potentially foolhardy given the penalties) or engage with HMRC. If they choose the latter, the onus is on the business to self-assess and produce a report in a prescribed format. HMRC is no doubt hoping that even those that do not receive a letter will be encouraged to review their position and comply.

This affects large groups who have cross border transactions or structures that include captives. Small and medium size groups are generally exempt. If you believe that your transfer pricing strategy is robust and you don’t have any artificial structures then you may feel you have nothing to worry about. You may be right, but the concern is that the facility may be viewed as a ‘guilty until proven innocent’ approach by HMRC, and that this notoriously complex and subjective tax may impose a burden and liability on groups who do not realise that they fall within its scope.

How we can help

Our dedicated Tax team of industry experts provide advice to underwriters, P&I clubs and other mutuals, outsourcers, Lloyd’s and multinational insurers and brokers. We advise clients on their statutory requirements and the most efficient ways of fulfilling these obligations. We also advise many organisations on the most tax-efficient ways to structure their affairs and ensure that all available reliefs are utilised. With tax legislation being an area of regular change, our specialist team also helps clients stay abreast of the latest opportunities, as well as any potential pitfalls. We pride ourselves on the breadth and depth of our insurance expertise, offering specialist and tailored support to industry participants and regulators, locally and internationally.

For more information on the tax services we provide, including transfer pricing, please contact us

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