Read our news and analysis in the run-up to Budget 2014, as well as our views on all the Budget announcements.
OECD provides update on the BEPS Action Plan
Tax Policy and Controversy Briefing goes online
Indirect Tax Briefing: eighth edition
Worldwide Cloud Computing Tax Guide (2013-2014)
2013 Global Transfer Pricing Survey
2013 Worldwide corporate tax guide
Under the spotlight: June 2013
We’ll help you navigate the global tax landscape
The business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. We can help you navigate this shifting landscape. Governments are tempering the need for revenue with increased competition for labor and capital. Tax authorities are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. Companies are balancing competing priorities, ensuring they maintain compliance while adding value. We can assist you with these critical issues in today's tax environment, including:
- Midweek Tax News
A weekly update on tax matters to 4 March 2014
Midweek Tax News provides you with a succinct overview of the key tax developments that have occurred each week, to allow you to stay up-to-date on tax issues that may have an impact on your business. If you would like to discuss an article in more detail, please do speak to the relevant contact listed at the end of this issue or to your usual EY contact.
Finance Bill 2014 and pre-Budget predictions
The Exchequer Secretary to the Treasury, David Gauke, has announced that the Finance Bill will be published on Thursday 27 March, following the Budget on Wednesday 19 March.
We have recorded a short podcast of our predictions for the upcoming Budget, covering:
• Budget process
• Economic background
• The tax environment
• Draft Finance Bill so far
• Hot Budget topics
A recording of this podcast is available here.
Our web seminar at 2:00 pm on 20 March 2014 will then consider the measures announced in the Budget and their likely implications. To register for this webcast please use this link.
Country-by-country reporting (CBCR) for tax
There are two separate, though related strands to CBCR for tax: the EU proposal for public CBCR of tax numbers for large companies (on the back of the requirements in CRD IV for banks) and the OECD Action 13 of the Base Erosion and Profit Shifting (BEPS) Action Plan, requiring CBCR reporting to tax authorities only.
EU proposal for CBCR for large companies
The European Parliament and the Council of the European Union have reached agreement on a draft directive amending existing accounting legislation to improve the transparency of certain large companies on social, environmental and diversity matters.
Large public-interest entities in Member States (mainly listed companies and financial institutions) with more than 500 employees will be required to disclose environmental and social information in their management reports. The proposal does not include immediate requirements for CBCR in relation to tax matters, though the Commission is asked to report back on CBCR for tax matters by 2018.
The agreement now needs to be formally adopted by the European Parliament and the Council of the European Union. It is expected that these steps will be taken in April 2014.
The European Commission remains in favour of CBCR for tax and has expressed the hope that the review might be accelerated.
Our tax alert includes more detailed discussion regarding the agreement.
OECD Action 13
On 30 January 2014, the OECD invited comments from interested parties on its Discussion Draft on transfer pricing documentation and CBCR as part of Action 13 of the BEPS Action Plan. That draft included a template for companies to comply with CBCR.
The OECD has now published the comments received, which run to four volumes and over a thousand pages. This reflects the significant interest in this area. The comments will be discussed by Working Party No. 6 at its March and May 2014 meetings and be the subject of a Public Consultation to be held in Paris on 19 May 2014. Please get in touch with your usual EY contact if you would like to discuss our response or how the proposal might impact you.
Supreme Court considers contribution to FURBS: Forde & McHugh
In a unanimous judgment, the Supreme Court has overruled the Court of Appeal and held that the payment by a taxpayer company, of an employer's contribution, to a Funded Unapproved Retirement Benefit Scheme (FURBS), was not a payment of earnings for the benefit of the individual member. Class 1 national insurance contributions were, therefore, not payable on the value of the transfer.
Before the Supreme Court, the taxpayer company accepted that ‘earnings’ had a wider meaning than ‘emoluments’ in income tax legislation. However, it submitted that the payment of ‘earnings’ under section 6 of the Social Security Contributions and Benefits Act 1992 did not extend to the employer's transfer to a trust of funds or assets in which the earner had at the time of the transfer only a contingent interest.
The judgment reviewed the history of the national insurance scheme and highlighted the significance of the word ‘earnings’ rather than ‘emoluments’. In addition the Court noted that HMRC was effectively arguing that earnings are paid to an earner both when assets are transferred to a pension scheme to be held on a trust and also when payments are made from the trust fund; effectively double counting.
US tax reform: Camp proposal
David Camp, Chairman of the US House of Representatives Ways and Means Committee, has released a comprehensive discussion draft on US tax reform. In summary, the proposals in the discussion draft aim to broaden the US tax base by the removal of incentives, tax credits and reliefs, and the reduction of overall tax rates.
The long-awaited plan illustrates the trade-offs necessary to significantly lower tax rates but also, through a macroeconomic analysis, achieve potential economic growth associated with tax reform.
It is not clear that the discussion draft will be brought up for consideration in the Ways and Means Committee or otherwise in Congress this year. Speaker, John Boehner, described the release of the draft as the beginning of a “public conversation” on tax reform, following comments from Senate Democratic and Republican leaders earlier, indicating tax reform is a non-starter in that chamber this year.
Our international tax alert outlines the key corporate, international, and financial services provisions of interest to multinational companies.
Other UK developments
Business, Innovation and Skills Committee calls for reform of business rates
In its report of 4 March, the Business, Innovation and Skills Committee has proposed that the current system of business rates is not fit for purpose and needs to be fundamentally reformed.
It calls for a wholesale review that goes beyond the administration of business rates to examine whether retail taxes should be based on sales rather than the rateable value of a property; whether retail needs its own system of business taxation; and how frequently revaluations should take place.
In the interim, the Committee calls for a six months business rates amnesty for businesses occupying empty properties. This would go further than the measures announced in the Autumn Statement. It also recommends a review of whether business rates are more appropriately linked to CPI or RPI, perhaps subject to a cap at 2%.
Updated guidance on FATCA implementation in the UK
HMRC has issued an updated version of the UK Guidance on the Implementation of The International Tax Compliance (United States of America) Regulations 2013. The updated guidance reflects contributions from UK business and advisors made prior to the issue of updated US Foreign Account Tax Compliance Act (FATCA) Regulations on 20 February 2014, so further updates to this guidance will be required as a result of the recent changes to the US Regulations.
Removal of extended time limit restrictions for EU cases
HMRC has published draft legislation making amendments to section 107 Finance Act 2007.
These amendments recognise the effect of the Supreme Court ruling in the Franked Investment Income Group Litigation that legislation affecting the limitation period in old actions for mistake of law cannot apply in relation to claims concerning tax charged contrary to EU law.
The legislation will have effect from the date that Finance Bill 2014 receives Royal Assent and will be fully retrospective.
Government response to Public Accounts Committee (PAC)
In its December report on HMRC's 2012-13 accounts, the PAC was critical of the approach of HMRC to the annual ‘tax gap’ and made a number of recommendations for HMRC's dealings with large international businesses and individuals that knowingly mislead or withhold information.
The Government has now published its response, in the form of a Treasury minute, in which it disagrees with many of the PAC's recommendations. In particular, it points out that the tax gap definition, calculation and the limitations are described in detail in HMRC's annual tax gap publication and it is made clear that the tax gap measures compliance with existing tax law. The response stresses that the tax gap does not cover how much tax might be paid if tax laws were different. The Government also makes it clear that in its view HMRC already demonstrates firm action against those who cheat the system.
Public Accounts Committee to host international tax conference
It is being reported that, in September 2014, the PAC will host an international conference on tax avoidance, bringing together parliamentarians around the world to compare notes and cross-examine multinationals. It is not yet clear how the conference will be organised or which multinationals may be invited.
Welsh devolution proposals
The House of Commons Welsh Affairs Committee has published a report on its pre-legislative scrutiny of the draft Wales Bill. The report focusses on the aspects of the draft Wales Bill that the Committee considered most significant for Wales – the proposed devolution of tax and borrowing powers and changes to the electoral arrangements of the National Assembly.
In their conclusions, the Committee state that “they agree with the provision in the draft Wales Bill to make the partial devolution of income tax to the Welsh Government contingent on a ‘yes’ vote by the people of Wales in a referendum”, and they make a number of recommendations regarding the provision of further information by the Government so that Parliament can fully assess the impact of the Bill.
Upper Tribunal considers effect of ‘fair bargain’ with employees
The Upper Tribunal has given its judgment in the case of Apollo Fuels, a case concerning car benefits, which potentially has much wider implications. The Tribunal addressed issues relating to whether a benefit can arise at all when there is a ‘fair bargain’, and how the benefits code interacts with the general charge on earnings.
The case revolved around a car-leasing scheme under which each employee paid what HMRC accepted was an arm's length commercial rental. The cars were not treated by the employers as company cars, and mileage allowance payments (MAPs) were reimbursed for any business mileage, being set off against the lease rentals due from each employee.
The Upper Tribunal (overturning the First-tier judgment) found that the lease of the car did not constitute a transfer of property in the car. However, it found that company car benefits did not arise and that PAYE was not due on the MAPs. In its analysis of whether a ‘benefit’ can be argued to arise where full market value has been paid by the employee, the Tribunal concluded that “… fair bargains are excluded from the regime for taxing benefits conferred on employees because there is no benefit which is properly subject to tax”.
The Government has stated its intention to legislate to tax cars, leased by an employer to employees, as company cars, from April 2014.
Relevance of whether a termination payment was for a future right to receive shares
In the case of Essack, the First-tier Tribunal has considered whether a payment made to an employee on termination of employment was subject to income tax under section 401 ITEPA 2003 or whether part of the payment was a capital sum taxable under TCGA 1992.
The taxpayer argued that a large part of the payment was received for the surrender of his right to receive shares in the company in the future. The Tribunal found that right to have arisen from an unenforceable promise made by the employer. Though the promise could give the taxpayer the right to sue on the representations made, it did not constitute an asset or right for the purposes of capital gains tax.
Even if the taxpayer had an enforceable right to shares constituting a capital gains tax asset, the Tribunal found that the payment was within the wide scope of section 401 and was taxable as employment income. The Tribunal agreed that section 37 TCGA 1992 is wide enough to take outside the capital gains tax charge any income on which tax is charged under ITEPA and that those provisions take priority.
Proposed reform of investor visa routes
The Migration Advisory Committee has published its independent report on investment thresholds under the Tier 1 (Investor) migration route. The key recommendations are:
• A minimum £1 million investment threshold to be increased to £2 million
• The creation of an auction and bid process for a limited number of ‘premium route’ visas with a reserve set at £2.5 million
Our tax alert provides further detail.
Judgment due in the Secret Hotels2 VAT case
The Supreme Court will deliver its judgment in the taxpayer's appeal from the Court of Appeal in the case of Secret Hotels2 Ltd (formerly Med Hotels Ltd) on 5 March 2014. This case concerns whether the taxpayer acted as principal in the sale of foreign hotel accommodation to holidaymakers and was, therefore, obliged to pay UK VAT on its margin under the Tour Operators' Margin Scheme (HMRC's position), or whether it acted as a disclosed agent for the hotels, in which case no UK VAT was due (the taxpayer's position). The Court of Appeal allowed HMRC's appeal and restored the decision of the First-tier Tribunal that the taxpayer was not simply supplying agency services to the hotels, but was itself supplying the hotel accommodation.
HMRC issues guidance on tax treatment of Bitcoin and other cryptocurrencies
On 3 March 2014, HMRC released Brief 09/14 which sets out its position on the tax treatment of Bitcoin and other cryptocurrencies. Bitcoin is created and traded digitally but increasingly can be used as payment for goods and services.
HMRC confirms that no particular tax consequences arise where Bitcoin is received in payment for goods or services. However, where profits or losses arise on exchange movements relating to the cryptocurrency itself, in HMRC's view these are taxable for corporation tax purposes under the general foreign exchange and loan relationships rules (for non-incorporated business, such profits or losses should be taxed under 'normal income tax rules'). Gains and losses arising on Bitcoin that are not taxed within trading profits or under the loan relationship rules would normally be taxed under the capital gains rules. Profits or losses arising outside a business context would be taxable dependant on the usual 'badges of trade' tests. Highly speculative transactions may be regarded as gambling and may not be taxable.
In relation to VAT, HMRC's view is that income received in relation to Bitcoin activities will generally either be outside the scope of VAT, or VAT exempt. However, HMRC recognises that the VAT treatment of cryptocurrencies will need to be consistent across the EU, and so emphasises that this guidance may change. Any subsequent changes would not be retrospective.
Compatibility of Dutch fiscal unity regime with EU law
The EU Advocate General (AG) has issued an opinion in the case of SCA Group Holding BV on the compatibility of the Dutch fiscal unity regime with the EU freedom of establishment. This regime allows groups of companies to file a single tax return and calculate their Dutch corporate income tax liability on a consolidated basis, and enables losses incurred by one company in the group to be offset against the profits of another. Fiscal consolidation is not, however, possible between a Dutch parent and a Dutch second tier subsidiary held through an intermediate company established in another EU member state, or where two Dutch subsidiary companies are held by a parent company in a different member state.
The AG has concluded that this restriction is an unjustified infringement of the EU freedom of establishment. This opinion is in line with the view of the European Commission, which in June 2011 made a formal request to the Netherlands to amend its fiscal unity regime. The final decision on this matter will now be with the Court of Justice of the European Union (CJEU). If the CJEU upholds the AG's opinion, the Netherlands may need to amend its fiscal unity rules to comply with this judgment, and could mean the Netherlands moving towards a more territorial based fiscal unity regime. Groups may also wish to consider whether there may be implications for earlier periods.
Our international tax alert contains more detail.
Court of Justice of the European Union (CJEU) judgment regarding the definition of small and medium sized enterprises
A recent judgement of the CJEU (HaTeFo GmbH v Finanzamt Haldensleben) considers the interpretation of the SME Recommendation 2003 and the definition of micro, small and medium-sized enterprises; specifically the definition of “linked enterprises”. In the UK, this might impact the treatment of issues ranging from relief for research and development costs, transfer pricing and to the application of the worldwide debt cap provisions.
The Court found that enterprises may be regarded as ‘linked’ even though they do not formally have any of the relationships referred to in Article 3(3) of the Recommendation, where analysis of the legal and economic relations between them show that through a person or persons acting jointly, they constitute a ‘single economic unit’. The ‘acting jointly’ condition is satisfied if persons work together to exercise an influence over the enterprises concerned which precludes those enterprises from being regarded as economically independent of one another.
Other international tax alerts
Please see a selection of our international tax alerts in respect of the following developments. Additional articles are available in our Global tax alert library.
Spain: The Spanish tax authorities have issued a ruling increasing eligibility to participate in the Spanish REIT tax regime.
South Africa: The 2014/15 Budget Review proposes changes to secondary transfer pricing adjustments.
Brazil: The Federal Revenue Attorney General's Office has published a formal Opinion that certain payments for services without transfer of know-how made by Brazilian residents to residents of jurisdictions with which Brazil has entered into a double tax treaty should not be subject to withholding tax.
Spain: The CJEU has issued a decision on the Spanish tax on retail sales of certain hydrocarbons.
Indirect tax in 2014 marks our fifth annual round-up of developments in value added tax, goods and services tax, excise duties, customs duties and environmental taxes around the world. We present changes that have been introduced recently or that are expected in the coming year in more than 100 countries. We also provide four summary maps to give a ‘snap shot’ of where the changes are taking place. Finally, we examine the changes we are seeing around the world in more detail to identify key trends and their implications for global businesses.
Please speak to your usual EY contact, or email us at firstname.lastname@example.org, if you would like to receive a copy of our regular indirect tax newsletter, or information about our other publications.
If you would like to discuss any of the articles in this week's edition of Midweek Tax News, please contact the individuals listed below, Claire Hooper (+ 44 20 7951 2486), or your usual EY contact.
Finance Bill 2014 and pre-Budget predictions
+ 44 20 7951 2415
Country-by-country reporting for tax
+ 44 20 7951 2486
Supreme Court considers contribution to FURBS: Forde & McHugh
+ 44 20 7951 0102
US tax reform: Camp proposal
+ 44 20 7951 4180
For other queries or comments please email email@example.com.
- Operating in a shifting tax landscape
The global tax landscape continues to change in a dramatic fashion, with near-constant news hitting the headlines regarding shifting tax policy, increasing levels of enforcement and the growing potential of reputational risk.
Multinational companies now have to balance more competing priorities than ever before, ensuring they protect their business by monitoring and responding to changes in policy, legislation and tax enforcement, while at the same time ensuring they not only maintain the highest levels of compliance but also add value from the tax function.
Governments work to secure each tax dollar they're due
From a policy perspective, all governments want their country to be viewed as an attractive place to do business, to attract jobs and capital in an increasingly competitive globalized arena.
At the same time, they want to increase the amount of revenue they bring in. Governments are treading a fine line, constantly assessing how to secure the tax revenues they see as rightly theirs, while at the same time being in direct competition with other nations, making sure they do not scare off mobile capital.
Tax administrations for their part are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. They are working to ensure that their resources are being applied to the right issues and taxpayers. They share more leading practices and taxpayer information with their foreign counterparts, to help them collect every dollar due.
Disputes are on the rise
The result has been more frequent, complex and higher value disputes between taxpayers and taxing authorities — a trend that is only increasing as countries collaborate together and as emerging markets gain in stature and influence, taking a more sophisticated approach to taxation. Penalties are becoming more stringent and the threat of reputational risk has risen significantly in recent months.
We can help you to navigate a route through this complex landscape.
We can help you monitor and react to quickly-changing tax policy and assess the economic and fiscal impact.
Where tax policies might create an impediment to your business that is unintended by policy makers, we can help you to collaborate – either solely, or as part of a broader grouping of companies who share a common objective – with government to:
- Explain the impediment
- Develop alternative policy choices which are logical and well thought out
- Model the potential outcomes
- Deliver an alternative choice to the government in a form with which policy makers can comfortably work
We also help you address your global tax controversy, enforcement and disclosure needs.
We focus on pre-filing controversy management to help you properly and consistently file your returns and prepare the relevant back-up documentation.
Where a controversy has already occurred, our professionals leverage the network's collective knowledge of how tax authorities operate, and increasingly work together, to help resolve difficult or sensitive tax disputes. To ensure that continuous performance improvements are instigated after a controversy, we work with EY's other tax professionals to ensure that similar events are less likely to occur.
Below you can access our views and analysis of some of the substantial policy and enforcement trends and issues at play today.
- Seizing the opportunity in Global Compliance and Reporting
Global Compliance and Reporting (GCR) is at a tipping point. Many companies distribute responsibility for GCR processes throughout their organization creating a patchwork. The results are suboptimal. Our recent survey shows a need for a new approach.
Due to the combination of evolving business models, transforming finance functions and an increasingly complex regulatory landscape. There are new opportunities to better optimize efficiency, control and value, to help mitigate risk and improve performance.
What is Global Compliance and Reporting?
GCR comprises the key elements of a company's finance and tax processes that prepare statutory financial and tax filings as required in countries around the world. These duties include:
- Statutory accounting and reporting
- Tax accounting and provisions
- Income tax compliance
- Indirect tax compliance
- Governance and control of the above processes
GCR activities reside in the middle of a broader set of so-called record-to-report (R2R) processes. R2R is the intersection between any company's finance and tax departments and is used to capture, process and store information that is essential to statutory accounting, tax compliance and reporting. Any change to R2R processes, information, finance systems, roles and responsibilities will have a direct impact on GCR processes.
Risk on the rise
GCR risks are on the rise. Local jurisdictions are rewriting regulations, focusing more intently on the collection of tax revenues and sharing more taxpayer information across borders. At the same time, the global financial crisis has driven companies to redesign their finance operating models to remain competitive and to take advantage of opportunities for growth.
Our new report Seizing the opportunity in Global Compliance and Reporting investigates the significant developments taking place as multinational companies determine the best way to meet financial reporting and tax obligations worldwide.
Our case study highlights how we helped leverage an array of external providers
Helping you achieve meet the new GCR demands
Fast changing compliance and reporting requirements are more demanding on tax and finance functions today than ever before. So how do you improve control and quality, manage risk, create efficiency and drive value?
Our market-leading approach combines standard and efficient processes, highly effective tools and an extensive network of local tax and accounting subject matter professionals.
See more on how we can help you meet the demands of today's tax landscape
- Building effective supply chains
As multinational companies seek to reach new markets and compete more effectively in mature markets, they are adapting and differentiating their supply chains. Companies’ operating models need to cater for efficiency and scale in mature markets, while having the flexibility and local ability to support growth in emerging markets. Consequently, driving true shareholder value requires an operating model that combines global and regionally differentiated processes, and integrates these with local striking power and operational excellence.
Leading companies recognize the need for integrating tax in their business planning and decision processes
Whether companies seek to enter new markets or drive efficiencies in mature markets, leading companies understand the complexities of the international tax systems. The impact of both direct taxes and indirect taxes needs to be carefully considered and integrated to drive the effectiveness of the operating model while complying with all applicable local and international tax laws and effectively manage all tax risks. Operating model effectiveness is becoming one of the cornerstones of successful competition and differentiation.
The EY TESCM offering helps ensure you do just that. Our advisory and tax professionals operate as one team to assist our clients with developing and implementing operating model optimization where business needs and requirements are the driver while making sure that tax is an integrated part of the design of the operating model architecture.
- Managing mobile workforce risk
In today's globally integrated, tightly regulated and increasingly competitive business environment, one critical success factor stands out: people. People represent an organization's most significant investment and offer a tremendous opportunity to gain a competitive advantage.
Where the leading companies are focusing their efforts
- Attracting and retaining the right people
- Global talent deployment and mobility
- HR and payroll effectiveness
- Risk, governance and compliance
Managing the risks of mobile employees
While optimizing the competitive advantage of your people has long been a core objective, a more recent set of trends in the tax landscape means that large companies with an internationally mobile workforce are at a higher risk of tax noncompliance and resulting controversy than ever before.
The business and tax landscapes that have changed so much over the last few years continue to shift. The pace of globalization is increasing, and the global financial crisis has acted as a catalyst to both globalization and business transformation, with many emerging markets now seeing faster growth than before the crisis.
Alongside these megatrends, a variety of underlying issues are converging, resulting in a growing set of risks for multinationals who have globally mobile employees. While companies may closely define and execute their formal expatriate assignment policies, business travelers outside the scope of such formal policies are widely accepted to be creating a new set of risks for companies to manage.
Unintended tax compliance obligations
These travelers are increasingly creating unintended tax compliance obligations, and the resulting risks are not just personal. They are increasingly felt at the corporate level, with the corporate tax function often unaware of the extent of the spreading problem. Tax administrations are becoming increasingly aware of the issue, however, and are very effectively using new technology to identify where a tax obligation has arisen. In a rising tax enforcement landscape, this issue has significant potential to grow.
Managing these risks should be a burning platform issue for multinational companies.
A burning platform?
What may start as a relatively simple personal income tax compliance issue can quickly create a ripple effect, with risks such as the creation of a permanent establishment, an employment tax audit or the payment of a significant related penalty all occurring at the corporate level.
At the same time, the pace of legislative change (such as the increasing enforcement of permanent establishment) is actually speeding up. Countries are using this type of legislation to increase overall levels of tax revenue.
As governments continue to look for ways to widen the tax base, they are likely to learn from one another in fora such as the OECD's Forum on Tax Administration, CIAT, CIOT and SGATAR and quickly replicate the processes and technologies used. As they do so, we will likely see penetration of this issue into a broader number of companies of smaller size.
Companies, recognizing the spectrum of reputational, personal and financial risks related to tax, are making strong efforts to be compliant. There is an increasing acceptance that such issues are becoming increasingly urgent from both a reputational and a financial perspective.
How we are helping companies
Our Human Capital network embeds processes and technology that will help companies to identify and manage STBT-related risks before they occur. Where controversy has already arisen, EY's global Tax Controversy network can use our insights into the culture and processes and relationships with each key tax administration to remediate issues. With prior year issues being rapidly unearthed, and with tax administrations focusing on this issue more than ever before, the time to act is now.
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The trust an organisation builds with its stakeholders is critical, and tax transparency is a key dimension in building that trust. Find out how we can help.