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Calculating taxable diverted profits ― step 1

Once it has been established that a charge to DPT has arisen in accordance with the conditions of FA 2015, ss 80 or 81, as set out in the DPT ― entities or transactions lacking economic substance guidance note, it is then necessary to calculate the quantum of 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 ways in which the amount of taxable diverted profits may be determined, which are set out in Step 2 below. However, in order to ascertain which of these three methods is to be applied, the ‘material provision’ (effectively what has actually happened) must first be compared with a ‘relevant alternative provision’ to establish whether or not the ‘actual provision condition’ is met.

The ‘material provision’ takes its meaning from FA 2015, s 80, ie the actual transaction or series of transactions.

The ‘relevant alternative provision’ means the alternative provision