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This guidance note sets out the circumstances in which a charge to diverted profits tax (DPT) can arise in the context of a non-UK company that avoids creating a UK permanent establishment (PE), under the provisions of FA 2015, s 86. There are a number of significant underlying legal and direct tax issues that need to be considered in analysing what constitutes a PE for this purpose. Please refer to the Permanent establishment guidance note for further details.

To summarise, the main purpose of FA 2015, s 86 is to challenge certain artificial arrangements and to bring them into charge to UK tax. In order to bring the profits arising from such arrangements into charge, FA 2015, s 86 deems there to be a notional PE of the non-resident company in the UK, in the form of the company or person with a UK presence providing related services or generally undertaking related UK activity (referred to as the ‘avoided PE’ under FA 2015, s 86).

HMRC must demonstrate that the arrangements were in fact