HMRC Assess Diageo’s Diverted Profits Tax
Diageo’s recently published annual report was revealing for a couple of reasons. First, it showed how large multinational companies are more often than not embroiled in at least one tax dispute across the many jurisdictions in which they operate.
Second, in Diageo’s case, one of these tax disputes concerned the United Kingdom’s Diverted Profits Tax (DPT). And this development was interesting because this was one of the first times that the UK tax authority, HMRC, has assessed DPT against a company.
The next development of interest will be what happens next in this dispute. And doubtless other multinationals with potential exposure to this charge will be keenly watching how it unfolds, with a view to strengthening their own defences against the tax. However, they’ll need a long attention span. Because under the DPT legislation, after a taxpayer is issued with a DPT payment notice (the DPT is a “pay first, argue later” tax), there is a 12-month review period during which the charge may be adjusted. At the end of the review period the business has the opportunity to appeal against any resulting charge, potentially prolonging the dispute further, although the review period can be brought to a conclusion earlier with the agreement of both parties.
It is unsurprising that, given the sum of money at stake, Diageo has chosen to pursue an appeal here. However, some tax experts have wondered, given the wide scope of the DPT legislation, and the fact that the odds seem to be stacked in HMRC’s favor, whether taxpayers would be prepared to defend their tax positions if relatively small sums were involved. Indeed, HMRC’s Accelerated Payment Notices (APN), under which those accused of using aggressive tax avoidance schemes must also pay up before appealing, has turned out to be pretty successful, and you could say that with the DPT regime, the APN scheme has effectively been extended to large corporates.
It could be argued that the DPT and APNs load the dice too much in favor of the tax authority at the expense of potentially innocent taxpayers, that it presumes guilt before innocence. But hasn’t it always been thus? Like governments and sin taxes, tax authorities often profit from your mistakes. Indeed, you could easy accuse them of having a vested interest in tax complexity, because the more complicated it is to complete your tax return, the more likely you are to make mistakes and be fined.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look