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Calculating taxable diverted profits ― step one

Once it has been established that a charge to diverted profits tax (DPT) has arisen in accordance with the conditions of FA 2015, s 86, as set out in the DPT ― avoidance of UK permanent establishment guidance note, it is then necessary to calculate the quantum of the non-UK company’s profits (if any) that will be subject to the charge. The aforementioned guidance note should be read prior to reading this one.

There are three statutory ways in which the amount of taxable diverted profits may be determined, under FA 2015, ss 89, 90 and 91 (although there are technically four if sections 91(4) and 91(5) are considered separately), which are set out in Step two below. In order to determine which of these methods apply, it is necessary to determine whether or not the ‘mismatch condition’ (defined in the DPT ― avoidance of UK permanent establishment guidance note) applies and, if so, whether or not the ‘actual provision condition’ (defined below) then applies at the