Profit Fragmentation Rules

Our summary guide

The Government introduced rules in Finance Act 2019 to potentially tax profits moved from a UK person to an offshore person where certain criteria are met.  This is part of its wider focus on all forms of offshore tax avoidance.

In recent years, significant changes have been made to the UK tax legislation to help ensure that large multinational businesses cannot manipulate domestic and international tax rules to their advantage, for example the diverted profits tax (DPT) and increasing focus on transfer pricing.

There have also been significant global initiatives in this area, coordinated by the OECD’s Base Erosion and Profit Shifting (BEPS) framework, which includes a number of different Actions and has involved 135 countries collaborating with the objective of ending tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax.

The UK has had a transfer pricing regime for many years, however small and medium enterprises (SMEs) have largely been exempt from the need to consider transfer pricing legislation.

However as of 1 April 2019, this potentially all changed for UK resident SMEs in the UK, and individuals and partners from 6 April 2019, with the introduction of the profit fragmentation legislation.

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This is complex anti-avoidance legislation that requires affected parties to self-assess whether or not an additional tax charge should be paid as a result of profits being moved out of the UK.

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Download our Profit Fragmentation Rules summary guide PDF

If you have any questions having read this guide please contact us.

For more information

For more information please contact a member of our tax team on:

01483 416232