Policy papers and Making Tax Digital
Policy papers containing updated legislation to be included in the next Finance Bill, which is due to be published as soon as possible after the summer recess, were published on 13 July. Mel Stride, the Financial Secretary to the Treasury provided the following background to these papers, "The Finance Bill to be introduced will legislate for policies that have already been announced. In the case of some provisions that will apply from a time before the Bill is introduced, technical adjustments and additions to the versions contained in the March Bill will be made on introduction to ensure that they function as intended. To maximise certainty about the exact provisions that will apply, the Government is today publishing updated draft provisions.”
The key corporate tax papers are as follows:
· The corporate interest restriction legislation. This legislation will come into effect from 1 April 2017.
· The carry forward of corporate tax losses. These rules will also come into effect from 1 April 2017.
· Changes to the hybrid rules, which include the removal of local taxes from the definition of overseas taxes that can be taken into account when determining whether there is a mismatch from 13 July 2017.
A full list of the papers, including one on the changes to the deemed domicile rules for individuals, can be found here. A list of provisions that will apply from the start of the 2017/18 tax year, or any other point before the introduction of the Bill, has also been published. See http://deloi.tt/2ummsKH.
There was also an update on Making Tax Digital. Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations. This will apply to businesses which have a turnover above the VAT threshold. Businesses will not need to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.
OECD releases new transfer pricing discussion drafts on BEPS Actions 7 and 10
The OECD has released two new BEPS discussion drafts:
· BEPS Action 7: Attribution of Profits to Permanent Establishments – the report on Action 7 mandated the development of additional guidance on how the rules of Article 7 of the OECD Model Tax Convention would apply to permanent establishments (PEs) resulting from the changes in the report, in particular for PEs outside the financial sector. The new draft replaces the draft published for comment in July 2016. See http://deloi.tt/2sUrTjj
· BEPS Action 10: Revised Guidance on Profit Splits – this replaces the draft released for comment in July 2016. See http://deloi.tt/2sF0DmA
Comments on both are invited by 15 September 2017 and the OECD intends to hold a public consultation on each in November 2017. Deloitte’s Alerts can be found here: Action 7 and Action 10.
Supreme Court judgment for HMRC in Rangers employee benefit trust case
The Supreme Court has unanimously dismissed the taxpayer's appeal in RFC 2012 Plc (in liquidation) v Advocate General for Scotland (the Rangers employee benefit trust or EBT case), upholding the judgment of the Court of Session. The case broadly involved payments made by the football club to players through EBTs in an attempt to avoid liability to income tax and Class 1 NICs. The court held that Parliament has sought to tax remuneration paid in money or money’s worth. The judge said: ‘The central issue in this appeal is whether it is necessary that the employee himself or herself should receive, or at least be entitled to receive, the remuneration for his or her work in order for that reward to amount to taxable emoluments. A careful examination of the provisions of the primary legislation reveals no such requirement’. As the facts as found by the First-tier Tribunal made it clear that the amounts paid into trust were in relation to the footballers’ employments, the general charge to tax arose before taking into account any other possible charges, for instance on loans. References to making a relevant payment 'to an employee' or 'other payee' in the Pay As You Earn regulations covered payment either to the employee or to the person to whom payment is made with the agreement of the employee. The judge emphasised that the imposition of a specific tax charge does not necessarily mean that there is not a more general charge to tax which may supersede the specific charge. He also warned against being ‘distracted by judicial glosses which have enabled the courts properly to apply the statutory words in other factual contexts’. He went on to say: ‘the Courts must now adopt a purposive approach to interpreting tax legislation, and must identify and analyse the facts accordingly’. See http://deloi.tt/2sMZloc.
Lapsed share options: First-tier Tribunal decision
The First-tier Tribunal has given its decision in two combined cases on 'lapsed options'. The issue was the availability of a ‘general principles’ deduction for the accounting cost associated with employee equity awards, in cases where a statutory deduction is not available. These deductions were claimed prior to a legislative amendment in March 2013, introduced to prevent any further deductions being claimed on this basis. The cases involved deductions claimed under five different share plans including a Save As You Earn (SAYE) plan, a Company Share Option Plan (CSOP), an unapproved plan and a matching plan, as well as the use of an employee benefit trust to grant and settle the awards, and recharge agreements for the subsidiaries to pay the International Financial Reporting Standard 2 (IFRS2) cost to the parent. The judge decided that the accounting debit arising under IFRS2 was deductible as a trading expense of the employing companies and agreed with the taxpayers that the debit was not capital. He also held that the rules which grant deductions for exercised options did not prevent a deduction from being available where the option is not exercised. See http://deloi.tt/2sUf2hN
IFRIC 23: ‘Uncertainty over Income Tax Treatments’
The International Accounting Standards Board has issued a new Interpretation developed by the IFRS Interpretations Committee (IFRSIC). IFRIC 23 ‘Uncertainty over Income Tax Treatments’ sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The effective date is 1 January 2019 but it can be applied earlier. See http://deloi.tt/2saqD9e
OECD: Multilateral instrument: matching database
The OECD has gone live with the Multilateral Instrument (MLI) Matching Database. The MLI Matching Database makes projections on how the MLI modifies a specific tax treaty covered by the MLI by matching information from the signatories’ MLI positions.
The version currently available is in beta and the OECD has invited comments and suggestions.
OECD publishes 2017 edition of Transfer Pricing Guidelines
The 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations has been published. This latest edition, the first since 2010, mainly reflects a consolidation of changes resulting from the G20/OECD Base Erosion and Profit Shifting (‘BEPS’) Project, including those arising from Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) and Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting), approved by the OECD Council in 2016. Other changes include revised guidance on safe harbours, which was previously approved in 2013; and conforming revisions to guidance on business restructurings, approved in 2017. See http://deloi.tt/2v6SiZ5.
VAT: Spotlight 38 – HMRC warning about supply splitting avoidance schemes
HMRC have issued Spotlight 38, warning taxpayers not to try to avoid VAT by splitting a single supply into separate supplies. If multiple suppliers are used where the same elements could be provided by one supplier, and the customer has no opportunity to decline either element, then HMRC are likely to challenge the arrangements, invoking abuse of law if necessary. The Spotlight provides no examples to explain what particular structures have prompted its publication and is only a high-level summary of the tests that would have to be applied to specific circumstances, but it is a reminder of the need to identify the VAT treatment of supplies carefully when they are made by associated companies. See http://deloi.tt/2snG80G. To discuss the Spotlight please contact David Walters on 0113 292 1552.
Deloitte European VAT Refund Guide 2017
Non-resident businesses can incur significant amounts of VAT on expenses such as hotel bills, trade fairs, and exhibitions. In principle, businesses should be able to recover some or all of the VAT incurred. The 2017 edition of Deloitte’s European VAT Refund Guide (updated to 1 May 2017) covers the rules and procedures to obtain a VAT refund in 31 European countries.
Upcoming Dbriefs webcast
The next Dbriefs webcast is on Tuesday 18 July at 12.00 BST/13.00 CEST. The topic is A New Era For Tax Compliance: Mastering The UK’s Tax Digital Journey and during the webcast, our panel of experts will discuss HMRC’s making tax digital transformation programme and similar initiatives in other countries and what your organisation could and should be doing now to prepare for the ‘Age of Digital’. To register, click here.
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