What is the diverted profits tax?
Answered 17 March 2026
Here is a comprehensive overview of the Diverted Profits Tax (DPT):
What the law says
The charge Diverted Profits Tax (DPT) is a tax charged on "taxable diverted profits" arising to a company in an accounting period. Taxable diverted profits arise only if one or more of sections 80, 81, and 86 of the Finance Act 2015 (FA 2015) applies.
The two main scenarios
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Entities or transactions lacking economic substance (ss. 80 & 81): Sections 80 and 81 apply where a UK company (s.80) or a UK permanent establishment of a non-UK company (s.81) is party to arrangements involving entities or transactions that lack economic substance. The calculation of taxable diverted profits in these cases follows ss. 82–85.
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Avoidance of a UK taxable presence (s. 86): Section 86 applies where a foreign company avoids carrying on a trade in the UK through a UK permanent establishment, either because provision is made involving entities or transactions lacking economic substance, or because there are tax avoidance arrangements. The calculation of taxable diverted profits in these cases follows ss. 88–91.
DPT is not deductible In calculating income, profits, or losses for any tax purpose, no deduction or other relief is allowed in respect of DPT, and no account is to be taken of any amount paid (directly or indirectly) to meet or reimburse the cost of DPT. Such amounts are also not treated as a distribution for Corporation Tax purposes.
Administration The Commissioners for HMRC are responsible for the collection and management of DPT. Penalties apply for failure to notify HMRC of being within scope (under s.92 FA 2015) and for late payment.
HMRC guidance / practice
Purpose and scope DPT is a separate tax from income tax and corporation tax. It applies to diverted profits arising on or after 1 April 2015, with apportionment rules for accounting periods straddling that date.
Rates
- The normal rate is 25% of the diverted profit (plus any "true-up interest").
- Where taxable diverted profits are ring-fence (oil sector) profits, DPT is charged at 55%.
- Where taxable diverted profits would have been subject to the banking surcharge, DPT is charged at 33%.
Key conditions For ss. 80 and 81 to apply, the "material provision" must give rise to an effective tax mismatch outcome — broadly, where the reduction in the first party's tax liability exceeds any resulting increase in the second party's tax liability — and the insufficient economic substance condition must also be met.
Sections 80 and 81 cases relate to UK companies or UK PEs involved with transactions or entities lacking economic substance. Section 86 cases relate to foreign companies avoiding a UK PE, either through a mismatch condition or tax avoidance arrangements.
Interaction with other taxes If the Profit Fragmentation legislation leads to adjustments bringing an amount into charge to corporation tax, that amount will not also be taxable diverted profits for DPT purposes.
Collection from non-UK residents For non-UK resident companies, DPT (and interest on DPT) can be collected from a UK permanent establishment or an "avoided PE," which is treated as the UK representative of the non-UK company.
In summary, DPT is an anti-avoidance tax targeting multinationals that use arrangements lacking economic substance or that artificially avoid a UK taxable presence in order to divert profits away from the UK tax base. It operates separately from corporation tax and is charged at a higher rate (25% standard) to act as a deterrent.
Citation sources
PART 3 Diverted profits tax Payment and recovery of tax Diverted profits tax ignored for tax purposes 99 1 In calculating income, profits or losses for any tax purpose— a no deduction, or other relief, is allowed in respect of diverted profits tax, and b no account is to be taken of any amount which is paid (directly or indirectly) by a person for the purposes of meeting or reimbursing the cost of diverted profits tax. 2 An amount paid as mentioned in subsection (1)(b) is not to be regarded for
For section 80 or 81 to apply the material provision must give an effective tax mismatch outcome. Such an outcome is also one of the requirements of the mismatch condition at section 86 (“avoidance of a UK taxable presence”) see INTM489655. The detail of the calculation of taxable diverted profits in a section 86 case and the relevant section that applies, also depends on whether or not the material provision results in an effective tax mismatch outcome. References to “first party” and “second p
PART 3 Diverted profits tax Introduction and overview Introduction to the tax 77 1 A tax (to be known as “ diverted profits tax ”) is charged in accordance with this Part on taxable diverted profits arising to a company in an accounting period. 2 Taxable diverted profits arise to a company in an accounting period only if one or more of sections 80, 81 and 86 applies or apply in relation to the company for that period.
DPT applies to diverted profits arising on or after 1 April 2015. There are apportionment rules for accounting periods that straddle that date. The normal rate of DPT is 25% of the diverted profit plus any “true-up interest”. Where taxable diverted profits are ring-fence profits or notional ring-fence profits in the oil sector, DPT is charged at a rate of 55% plus true-up interest. Finance (No.2) Act 2015 introduced a surcharge of 8% on the taxable profits of banking companies arising on or afte
DPT is a separate tax from income or corporation tax. If the Profit Fragmentation legislation leads to adjustments which bring any amount into charge, that amount will not be taxable diverted profits for the purposes of DPT. This is because S83(3), S84(2)(c), and S85(6)(b)(iii) FA 2015, remove any amount taken into account in an assessment to corporation tax from being considered diverted profits. More information can be found in the DPT guidance.
PART 3 Diverted profits tax Introduction and overview Overview of Part 3 78 1 Sections 80 and 81 relate to cases involving entities or transactions which lack economic substance. 2 In these cases— a sections 82 to 85 deal with the calculation of taxable diverted profits (and ensure appropriate account is taken of any transfer pricing adjustments already made), and b section 96 deals with the estimation of those profits when initially imposing a charge. 3 Section 86 relates to cases where, despit
The rules in Chapter 6 of Part 22 CTA 2010 apply to the assessment, collection and recovery of DPT, or interest on DPT from a non-UK resident company. These rules mean that tax and interest can be collected from a permanent establishment (PE) in the UK through which a non-UK resident carries on a trade. They also apply to an avoided PE for the purposes of the DPT. The permanent establishment or the avoided PE is treated as the UK representative of the non-UK company in relation to the taxable di
Sections 80 and 81 relate to cases where a company with an existing UK taxable presence is party to arrangements involving entities or transactions that lack economic substance. In these cases the calculation of taxable diverted profits follows the rules set out in sections 82 to 85 while section 96 explains how those profits are estimated for the purposes of preliminary and charging notices. Section 86 deals with cases where a foreign company avoids carrying on a trade in the UK through a UK PE