DPT was introduced by Part 3 of the Finance Act 2015, with effect from 1 April 2015. Its purpose was to counter measures taken by multinational groups to ‘divert’ profits that would otherwise be subject to Corporation Tax (“CT”). DPT was designed to encourage companies to restate profits on an ‘arm’s length’ basis and pay additional CT (or face a DPT charge instead—at a higher punitive rate).
There are two ‘gateways’ to the DPT charge—(1) where entities / transactions lack economic substance and are used to exploit an ‘effective tax mismatch outcome’ (ss.80–81 FA 2015); and (2) arrangements to avoid a UK permanent establishment (s.86 FA 2015). In March 2026, HMRC reported that DPT had helped HMRC to settle over 250 investigations for additional CT between April 2015 and March 2025 and that more than £10.5 billion had been secured since DPT's introduction.
Repeal and replacement of the DPT regime
S.46 of and Schedule 5 to the Finance Act 2026 repealed DPT and replaced it with the Unassessed Transfer Pricing Profits (“UTPP”) rules (inserted as Part 4A of TIOPA 2010) for accounting periods beginning on or after 1 January 2026. Under these new rules, HMRC may assess unassessed transfer pricing profits to CT at a punitive rate where certain conditions are met.
HMRC’s policy reasons for the change included (1) clarifying the relationship between the taxation of diverted profits and the transfer pricing regime and (2) to enable businesses to benefit from the UK’s international tax treaties including access to the Mutual Agreement Procedure (“MAP”) to relieve double taxation (HMRC considered DPT stood outside of the UK’s double tax treaties).
Continuing relevance of the DPT regime
Notably, the old DPT regime remains applicable for accounting periods that began before 1 January 2026 (and for open enquiries, notices and reviews relating to those periods). The UTPP rules govern periods beginning on or after that date. Companies must notify HMRC within 3 months of the end of the relevant accounting period (s.92 FA 2015) if they have arrangements which are potentially within the scope of the DPT regime (subject to certain statutory exceptions). Failure to notify may attract a tax-geared penalty (Schedule 41 FA 2008).
Where HMRC believe DPT is due, a preliminary notice is issued (HMRC’s time limit for this varies depending on whether it is a ss.80-81 case or a s.86 case and whether the company has failed to notify). Subject to the company’s response, HMRC may then issue a charging notice requiring payment within 30 days. The regime has been described as a ‘pay now, argue later’ regime. Following the charging notice and expiry of the payment window, HMRC have a 15-month review period during which they are meant to work with the company to resolve the matter (the company may amend its CT return before the final 30 days of the period, to bring profits into CT and reduce the DPT). HMRC may decide to issue a notice to reduce or increase the charge. After conclusion of the review, the taxpayer may appeal against the DPT charging notice within 30 days of the end of the review period.
Relationship with the transfer pricing regime
DPT operates in tandem with the arm’s length principle (following Part 4 TIOPA 2010). The UK's transfer pricing rules price transactions between connected parties for tax purposes as per this principle. The DPT and transfer pricing regimes work together—where an enquiry has been settled on a transfer pricing basis and additional CT has been paid, DPT may be reduced and any overpayment repaid (HMRC investigations into purported profit diversion are often resolved by companies agreeing to change their transfer pricing and pay additional CT).
In summary, although the UTPP rules now apply for accounting periods beginning on or after 1 January 2026, DPT remains relevant to taxpayers for accounting periods commencing before that date and related disputes. It is therefore important for companies in multinational groups to remain aware of the DPT regime because it remains highly relevant and a significant HMRC enforcement ‘stick’.
If you have a dispute with HMRC which involves any of the issues referred to above and would like to discuss how we might be able to assist you, please contact:
- Iain MacWhannell, Partner in our Tax Disputes Team:
https://uk.jha.com/our-people/profile/iain-macwhannell
imw@jha.com
+44 (0)20 7851 8888
- Thomas Hemming, Associate:
https://uk.jha.com/our-people/profile/thomas-hemming
Thomas.Hemming@jha.com
+44 (0)20 7851 8888
