1. General
1.1 Direct recovery of debt – persons at a particular disadvantage
The Government has tabled amendments to the Finance (No2) Bill 2015 in respect of the direct recovery of debt provisions, following further representations. The amendments are to Schedule 8 'Enforcement by deduction from accounts'.
As set out in the accompanying explanatory note, the amendments place a duty on HMRC to consider whether a debtor may be put at a particular disadvantage if this new power is exercised, in pursuit of a debt owed by that person, and to affirm in writing that this duty has been carried out. The criteria by which this disadvantage will be judged will be set out in guidance.
http://www.publications.parliament.uk/pa/bills/cbill/2015-2016/0057/amend/pbc0570810a.pdf
1.2 Transfer of personal data between state institutions
The CJEU has clarified that the ability of a national tax authority to transfer data on individuals to another state body, is dependent on the individual first being informed that his data can be used in this way.
The case resulted in back claims by the Romanian state body for unpaid national health contributions from the individuals based on data for those individuals' income declared for tax purposes to the Romanian revenue authority. The CJEU decision was:
'Articles 10, 11 and 13 of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995, on the protection of individuals with regard to the processing of personal data and on the free movement of such data, must be interpreted as precluding national measures, such as those at issue in the main proceedings, which allow a public administrative body of a Member State to transfer personal data to another public administrative body and their subsequent processing, without the data subjects having been informed of that transfer or processing.'
Any impact of this on the tax world remains to be seen. We understand that in the UK data relevant to tax has moved between government departments.
1.3 Automatic information exchange on cross border tax rulings
Following on from the OECD BEPS reports on increasing transparency (see 2.3 below), the EU member states agreed a directive on 6 October to introduce automatic exchange of information on cross border tax rulings. The relevant legislation will need to be implemented into national law by the end of 2016. The exchange will be required from 1 January 2017.
http://europa.eu/rapid/press-release_IP-15-5780_en.htm
2. Trusts, estates and IHT
2.1 Deductions for residential property businesses: proposed government amendments
The Government has also tabled some amendments to Clause 24 of the Finance (No2) Bill 2015 in respect of the tax relief restriction on finance costs in respect of certain residential property businesses.
The amendments bring in a tax reduction for trustees of settlements with accumulated or discretionary trusts. A problem with the original clause was that it only gave the basic rate tax credit to individuals, whereas the restriction to the allowable deduction in arriving at the taxable profits residential property business applied to trustees. The amended clause addresses this point.
The amendments also clarify that a company is outside the scope of this measure, whether it carries on a property business directly or in partnership.
www.publications.parliament.uk/pa/bills/cbill/2015-2016/0057/amend/pbc0570810a.pdf www.gov.uk/government/uploads/system/uploads/attachment_data/file/467228/Amendment_22-26_to_Clause_24.pdf
3.Business tax
3.1 Consultation: amendments to corporate debt and derivative regulations
HMRC has issued four draft amending regulations to deal with amendments to the corporate debt and derivative regime. These are required as a result of changes to be introduced when the summer 2015 Finance Bill receives Royal Assent. Consultation on these changes is open until 30 October 2015:
- the Exchange Gains and Losses (Bringing into Account Gains and Losses) Regulations 2002 (S.I. 2002 /1970: the 'EGL(BAGL) Regulations') are concerned with exchange gains or losses on loans or derivatives, which hedge certain assets and which have previously been disregarded for tax. They ensure that such gains and losses are brought into account at a time and in a manner consistent with the tax treatment of the hedged asset. The amendments aim to ensure the regulations interact with CTA 2009 s.320A and s.604A as introduced by the summer 2015 Finance Bill; s.320A and s.604A bring into account for tax purposes debits and credits allocated to other comprehensive income on the disposal of the asset/liability where it is not expected these amounts will be allocated to the P&L;
- the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account Profits and Losses) Regulations 2004 (S.I. 2004/3256: the 'Disregard Regulations') provide specific treatment to alter the amounts brought into account in respect of particular instruments on the introduction of international accounting standards. They provide rules where loans and derivatives are taken out to hedge commercial risks. The amendments simplify the tax rules on 'hedging' as a result of changes included in summer 2015 Finance Bill. Regulation 9A dealing with designated cashflow hedges will be repealed;
- the Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulation 2004 (S.I. 2004/3271: the 'Change of Accounting Practice Regulations') provide specific treatment to alter the amounts brought into account in respect of a change of accounting policy, including spreading of amounts over ten year periods. The amendments deal with impending changes to accounting standards, concerning adjustments arising from fluctuations in a company's credit worthiness, to align the regulations with the summer 2015 Finance Bill changes and to smooth any possible revenue impact for the Exchequer arising from the accounting changes;
- the Loan Relationships and Derivative Contracts (Exchange Gains and Losses using Fair Value Accounting) Regulations 2005 (S.I. 2005/3422: the EGL(FV) Regulations) provide specific rules for calculating amounts of exchange gains and losses where a loan relationship or derivative contract is measured at fair value or is part of a designated fair value hedge. The amendments make minor changes to statutory references and terminology to align with the summer 2015 Finance Bill changes.
3.2 Country-by-country reporting
HMRC has issued draft regulations specifying which entities are required to, or can, file country by country reports. The regulations will apply to a multi-national enterprise (MNE) group that has annual consolidated group revenue of £586m or more [€750m or around US$840m].
The regulations specify that:
- compulsory filing –
an ultimate parent entity resident in the UK must file the report no later than 12 months after the end of the accounting period to which it relates.
- voluntary filing –
a UK resident constituent entity of an MNE group may voluntarily file a report within 12 months of its accounting period end, where it is not an ultimate parent entity if one of three circumstances concerning lack of transfer of information applies to its jurisdiction of tax residence or the residence of its ultimate parent entity.
The information required to be reported must include the content, be in a form and be filed in accordance with the method to be specified by HMRC and in accordance with the OECD template for each tax jurisdiction in which the entity does business; it will show:
- the amount of revenue, profit before income tax and income tax paid and accrued; and
- their total employment, capital, retained earnings and tangible assets.
The report will also be required to identify each entity within the group doing business in a particular tax jurisdiction and to provide an indication of business activities within a selection of broad areas which each entity engages in.
An MNE group for the purpose of this regulation is any Group that includes:
- two or more enterprises, the tax residences for which are in different jurisdictions; or
- an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/465512/cbc-em.pdf
3.3 OECD BEPS reports
On 5 October 2015 the OECD issued its final reports on the 15 base erosion and profit shifting (BEPS) action points. We intend to produce a briefing summarising the main points in due course.
The tax impact of BEPS is currently estimated to be equivalent to between 4% and 10% of global corporate income tax revenues, or between US$100bn to US$ 240bn. This is, though, based on imperfect data and there are proposals to improve data collection and monitoring.
The proposals include refinements to transfer pricing guidelines concerning the impact of risk and intangibles on pricing. These changes will require an amendment to TIOPA 2010 s.164(4) to become effective for UK tax.
There are further proposals on countering hybrid mismatch arrangements. These include reforming harmful tax practices and limiting deductions for finance costs to between 10% and 30% of EBITDA or the effective group external interest/EBITDA ratio.
We expect consultations and possibly draft legislation on all these areas shortly. The proposals for the revised patent box regime are due this month. Consultations on tax deductible interest costs and hybrid mismatch anti-avoidance are due in the near future. The December 2014 consultation on hybrid mismatches indicated legislation would become effective for payments from January 2017 and the new patent box regime is expected to start from July 2016.
The OECD is recommending a tightening of the definition of a permanent establishment and a multi-lateral instrument to give effect to BEPS changes necessary to bi-lateral tax treaties in a more streamlined fashion.
www.oecd.org/tax/beps-2015-final-reports.htm
3.4 Film tax relief
Date of Increase of Film Tax Relief: 1 April 2015
SI 2015/1741 specifies that 1 April 2015 is the date that the rate of film tax relief increases from 20% to 25% for all qualifying film expenditure on films where the principal photography is not then complete. The 25% rate previously only applied to limited budget films with core expenditure of £20m or less.
www.legislation.gov.uk/uksi/2015/1741/pdfs/uksi_20151741_en.pdf
3.5 Compatibility of Dutch dividend withholding tax with EU law
The CJEU has ruled that a dividend tax regime that imposes a higher burden on non-residents than on residents is incompatible with the EU law on freedom of movement of capital. It left the matter of determining whether there was a difference in the tax treatment of residents and non-residents up to the referring court.
The case involved three particular circumstances. Two of the cases (C-10/14 and C-14/14) concerned Netherlands nationals who were resident in Belgium, but who either did not receive full credit for the 15% withholding tax on dividends levied in the Netherlands, or did not receive a €20,014 exception from tax on dividends based on the value of capital held. In contrast, a Netherlands-resident taxpayer would have been able to obtain credit and the benefit of the tax exception.
In the third case (C-17/14) Société Générale SA suffered the 15% withholding on dividends from its portfolio investments in Dutch entities. It was able to obtain a credit for that tax against its French corporation tax during periods when it was liable to French corporation tax as a result of being profitable there. However, as credit for the Dutch withholding tax cannot exceed the level of French tax, when Société Générale SA incurred a tax loss in France, the withholding tax was an actual cost. When comparing the position of a Dutch resident and non-resident corporation the Court commented the comparison should be made of their respective tax positions, taking account of dividend income and the expenses directly related to receiving that income.
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