In Vitol Aviation UK Limited & Ors v HMRC [2021] TC08287, the First Tier Tribunal (FTT) found that HMRC had sufficient information on the applicants' transfer pricing model to issue closure notices and that an ongoing enquiry into Diverted Profits Tax (DPT) was not reasonable grounds for refusing to do so.

  • Vitol Group traded in energy and commodities globally, with its European headquarters in Switzerland, UK trading companies and a UK Permanent establishment of the Swiss company. 
  • In 2016, the group applied for a new bilateral Advanced Pricing Agreement (APA) between HMRC and the Swiss tax authorities. The application included analysis for DPT.
  • During initial APA discussions, HMRC issued DPT notices to two of the UK companies and opened enquiries into the Corporation Tax returns ended 31 December 2016, 2017 and 2018. It was agreed between the parties that the only outstanding matter was the correct arm's length price charged by the companies under the UK transfer pricing rules and permanent establishment legislation.
  • In November 2020, the applicants requested that HMRC issue a consolidated list of all the information they still required in order to come to a position and issue Closure notices for the relevant periods under enquiry. This was issued in December 2020. 
  • HMRC subsequently refused to issue closure notices on the grounds that:
    • Items of requested information were still outstanding.
    • The issue of closure notices would pre-empt the end of the DPT review periods, subjected disputed profits to Corporation Tax and the DPT charge.

The FTT found, in relation to the first grounds for refusal, that:

  • Some items requested did not exist and others had been requested in unreasonable formats.
  • HMRC had all the information required to take a position before the issue of the information request.

The FTT held, that on that basis, refusal to issue closure notices was unjustified.

The FTT found, in relation to the second grounds for refusal, that:

  • HMRC were incorrect in stating that disputed profits should be subject to a DPT charge and not Corporation Tax. Discussions from a parliamentary select committee about the introduction of DPT showed that the aim was to have these profits subject to Corporation Tax and the DPT was to act as a deterrent for companies trying to avoid being so taxed.
  • There was no evidence that a calculation of profits under DPT would produce a different taxable profit than that resulting from the application of the transfer pricing rules. A such there was no reason why the applicants' profits should be taxed under DPT as opposed to Corporation Tax using the transfer pricing rules.
  • The DPT legislation provides no reasonable grounds for not issuing closure notices in this instance.

The FTT held, that on that basis, refusal to issue closure notices was unjustified. The FTT ordered the issue of closure notices within 30 days in respect of each of the enquiries to which the application related.

Useful guides on this topic

Diverted Profits Tax
Large multinational enterprises (MNEs) that use arrangements between connected parties to divert profits away from the UK and avoid UK tax, will be subject to the Diverted Profits Tax (DPT). Who does it apply to? What are the rules?

BEPS & Diverted Profits Tax (for SME Owners)
What is BEPS? What is Diverted Profits Tax? Will either of these affect me or my SME clients?

Permanent establishment & residence
What are the rules for determining a company's country of residence? What is central management and control? When does a company create a permanent establishment in another country?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

External link

Vitol Aviation UK Limited & Ors v HMRC [2021] TC08287


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