Diageo facing challenge over diverted profits tax

Drinks giant Diageo has revealed it is challenging a £107m assessment from HMRC under the diverted profits tax (DPT) regime, which came into effect in April 2015 and is intended to counter aggressive tax avoidance by multinational companies in the UK

In its 2017 annual report, the company says it has entered into a process of collaborative working with HMRC to seek clarity on its transfer pricing and related issues.  These discussions are ongoing.

In June, HMRC issued preliminary notices of assessment under the DPT regime, which mean Diageo is required to pay additional tax and interest of £107m in aggregate for the financial years ended 30 June 2015 and 30 June 2016.

The annual report states: ‘Diageo does not believe that it falls within the scope of the DPT regime. Accordingly, Diageo intends to challenge the assessments and in order to do so will have to pay in August 2017 the full amount assessed and then continue to work to resolve this matter with HMRC.

‘The payment of this amount is not a reflection of Diageo’s view on the merits of the case and, based on its current assessment, Diageo believes no provision is required in relation to DPT.’

The annual report also reveals Diageo has been in discussions with the French tax authorities over the deductibility of certain interest costs for periods from 1 July 2011. It is understood that the French tax authorities are intending to deny tax relief for certain interest costs.

Diageo said it believes that the interest costs are deductible and accordingly intends to challenge any such assessment. At this stage of discussions the company says it is ‘unable to meaningfully estimate the financial effect, if any, which might ultimately arise’. Based on its current assessment, Diageo believes that no provision is required in respect of this issue.

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