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The business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. 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:


Building a tax manifesto for manufacturing 658K, August 2014



  • Midweek Tax News

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    A weekly update on tax matters to 19 May 2015

    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 speak to the relevant contact listed at the end of this issue or to your usual EY contact.

    It has been announced that there will be a second Budget in the UK this year on 8 July. The Chancellor of the Exchequer has commented that it will be a Budget “for working people” to turn the promises of the Conservative manifesto into reality. However, no details have been announced on which specific measures will be included or the date for the publication of a new Finance Bill to enact any announcements. It is likely that much of the Budget will be devoted to spending decisions rather than to taxation.

    Our tax alert circulated on 18 May looks at what has happened since the Conservative party won a majority in the House of Commons and summarises some of the main policy implications (both non-tax and tax related) arising from the manifesto commitments and announcements.

    The revised discussion draft on preventing the artificial avoidance of permanent establishment status narrows down the options presented in the original discussion draft on Action 7 released in October 2014. In proposing the changes the document acknowledges the concerns raised that the options considered may create a significant number of permanent establishments but with little or no additional tax being due and generate a compliance and administrative burden; as well as potentially having unintended consequences.

    The preferred option for combatting commissionaire and similar arrangements used to avoid a permanent establishment is to widen the definition of an agent in the model tax treaty to include any party that “negotiates the material elements of contracts” on behalf of the foreign enterprise. The revised discussion draft now proposes that the definition of an independent agent should be limited but so that where a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is connected, that person shall not be considered to be an independent agent. The changes are not intended to address BEPS concerns related to the transfer of risks between related parties through low-risk distributor arrangements, as it has been decided that these concerns will be best addressed through the work on Action 9 (risks and capital).

    The original discussion draft provided several options to tighten the specific exemptions from permanent establishment status given in the model tax treaty. The preferred option in the revised draft is making all the exemptions applicable only for activities of a ‘preparatory or auxiliary’ nature. Working Party 1 has considered that it is essential this this is supplemented by an anti-fragmentation rule in order to address BEPS concerns where activities are fragmented between related parties to fall within the specific exemptions.

    The revised discussion draft suggests the proposed addition of a ‘principle purposes test’ to tax treaties should deal with cases where permanent establishment status is avoided by contracts being split up. Alternatively, an automatic rule could be used by countries that did not wish to adopt such a test. The specific suggestions on insurance in the original discussion draft have been dropped.

    Finally, the revised discussion draft includes suggested amendments to the commentary on the model tax treaty. It has been decided that follow-up work on attribution of profits issues related to Action 7 will be carried on after September 2015 with a view to providing the necessary guidance before the end of 2016, which is the deadline for the negotiation of the multilateral instrument that will implement the results of the work on Action 7.

    Comments are requested by 12 June. No further public consultation event is scheduled. The specific proposals do not, as yet, represent a consensus position.

    The OECD has also published comments received on the discussion draft on Action 11 (improving the analysis of BEPS). Meanwhile, our global tax alerts on the public consultation on Action 3 (CFC rules) and Action 12 (mandatory disclosure) are now available.

    This coming Friday, 22 May, we expect an updated discussion draft on Action 6 (treaty abuse).

    In the case of Next Brand Limited, the First-tier Tribunal rejected a claim for double tax relief in respect of underlying tax where a dividend from a UK subsidiary was mixed with profits from Hong Kong. The case relates to a dividend paid prior to the introduction of the present rules exempting foreign dividends from UK corporation tax.

    A UK subsidiary, that had ceased to trade but still had distributable reserves, was inserted beneath a Hong Kong company. This UK subsidiary then paid a dividend to the Hong Kong company. The Hong Kong company, in turn, paid a dividend to its UK parent, the taxpayer company, made up of profits taxed in Hong Kong as well as the dividend from its UK subsidiary.

    The dividend received by the taxpayer company was subject to UK corporation tax in its hands. Since the Hong Kong rate of corporate tax was lower than in the UK, additional UK tax would have been payable on a dividend paid out of Hong Kong profits alone. However, the taxpayer company claimed credit for underlying tax suffered by both the Hong Kong company and its UK subsidiary. The taxpayer argued that all the UK tax due on the dividend it received could be covered by double tax relief.

    The Tribunal decided that credit for the underlying UK tax was not available. Although the dividend was paid by the UK subsidiary out of distributable reserves, the Tribunal found that it was also necessary for the dividend to be derived from the profits that had actually suffered the underlying tax. In this case, the Tribunal found that the UK subsidiary had paid the dividend not out of distributable profits which had suffered UK tax but from an issue of shares to which the dividend related. Furthermore, the Hong Kong company did not recognise the dividend from its subsidiary as a profit but rather as repayment of a loan. The Tribunal found that this meant that credit for underlying tax from the UK subsidiary could not be carried up the chain in respect of the dividend from the Hong Kong company to the taxpayer company.

    From April 2016, a fundamental change will apply to P11Ds. Dispensations will no longer be granted and, in submitting P11Ds for tax year 2016/17 onwards, employers themselves will need to determine the technical basis upon which expenses are allowable or should be treated as taxable benefits in kind. Employers must also have a system in place to check that the expenses are actually incurred by their employees. Employers have long become accustomed to agreeing dispensations with HMRC so that they have been clear on which employee expenses can be disregarded for P11D reporting. However, with dispensations ceasing to be effective from next April, employers may wish to start planning for the change.

    Our employment tax alert highlights some important points among those that employers should consider.

    In the case of French Connection Ltd, the First-tier Tribunal considered whether the provision by the taxpayer of clothing free of charge to its retail store staff was a taxable supply for VAT purposes.

    Staff members were provided with a clothing allowance (referred to as an employee uniform allowance) for the particular season. This enabled staff members to choose items from the taxpayer's stock up to the amount of the allowance. Title to the goods passed when the staff member first took the clothing. Staff members were required to wear such clothing when working, and had also to wear a magnetic badge identifying the wearer as a staff member. HMRC considered that where clothing was supplied to staff and no consideration was received by the taxpayer, this constituted a supply of goods for VAT purposes.

    The Tribunal found that whilst the taxpayer provided the clothing to staff members for the purposes of its business, the clothing did not amount to a ‘uniform’. However, this did not affect the operation of the relevant VAT charge under domestic law. In circumstances where the taxpayer deducted the input tax incurred on the purchase of the clothing and title to the goods was transferred to the staff member, this constituted a taxable supply of goods for VAT purposes on which output tax was payable.

    Any retailers who provide clothing free of charge to their store staff may wish to consider the VAT accounting implications of this decision.

    Employment Appeal Tribunal decision on internationally mobile employees' rights

    In the case of Olsen v Gearbulk Services, the Employment Appeal Tribunal held that a peripatetic employee, that is someone whose workplace is either not fixed or who works away from their workplace for extended periods, was not entitled to bring a claim for unfair dismissal under UK law, even though he spent more of his working time in the UK than in any other country. The Tribunal noted that the employee had no base in the UK and had taken care to structure his working arrangements so that he was not subject to UK tax.

    The decision is potentially relevant to employers of mobile employees on international assignments, possibly engaged by a global or regional employing entity, who may seek to benefit from the statutory employment rights of different jurisdictions. Thus, employers of internationally mobile employees may wish to consider how the statutory employment rights of different jurisdictions apply to their peripatetic employees and those on international assignments.

    Please see our employment law alert for more details.

    Appeal against Employment Tribunal decision on holiday pay

    British Gas has appealed against the Employment Tribunal decision in Lock v British Gas, which followed a referral in this case to the Court of Justice of the European Union. There remains uncertainty surrounding holiday pay following the recently highly publicised case of Bear Scotland where it was decided that overtime should be included in holiday pay. That case was followed by the Tribunal in Lock which decided sales commission should also be included in holiday pay. British Gas has appealed on the grounds that the cases can be distinguished and that the Bear Scotland decision is incorrect in any case. No date for the appeal has yet been set.

    Our employment law alert considers these developments.

    First-tier Tribunal finds Lloyds Name not entitled to entrepreneurs' relief

    In the case of Carver, the First-tier Tribunal held that a sale of syndicate capacity by a Lloyds Name did not qualify for entrepreneurs' relief. Entrepreneurs' relief is available on the sale of all or part of a business, so the issue in this case was whether the sale by the Name of his syndicate capacity amounted to the sale of part of his business. HMRC accepts that the final sale of a Name's capacity at Lloyds qualifies for entrepreneurs' relief.

    The taxpayer claimed that disposal of his capacity in a syndicate was a disposal of ‘part of a business’ because it was a separately identifiable part of his underwriting business at Lloyds (he participated in 18 different syndicates). Furthermore, he contended that, since HMRC accepts that the final sale of a Name's capacity at Lloyds qualifies for entrepreneurs' relief, it must follow that the sale of any part before then also qualifies.

    However, the Tribunal held that the trade carried on by the taxpayer was that of underwriting the risks assumed by the syndicate's managing agent. The capacity to participate in the syndicate's business was not itself the trade, but a means by which the Name is enabled to carry it on in conjunction with the other members of the syndicate. Capacity was an asset of the business and was not the trade or business itself. Accordingly, the taxpayer was not entitled to entrepreneurs' relief on the sale and so the appeal failed.

    Update on challenge to four-year cap by customers who were wrongly charged VAT

    We understand that both sides (that is, both HMRC and the taxpayers) have applied for permission to appeal the Court of Appeal's judgment in the Investment Trust Companies case to the Supreme Court. The effect of the Court of Appeal's judgment (released in February 2015) is that recipients of supplies may be entitled to make a direct and potentially uncapped claim against HMRC in restitution where they can show that VAT has been wrongly charged in breach of EU law and they are unable to recover such sums from their suppliers.

    The process for obtaining permission to appeal can take many months. Consequently, it may be near the end of 2015 before any decision is made on the status of the appeals in this case.

    Availability of compound interest on overpaid VAT

    The Court of Appeal will deliver its judgment in HMRC's appeal from the High Court in the case of Littlewoods Retail Ltd and others on Thursday, 21 May. This case concerns the availability of compound interest on refunds of overpaid VAT, in circumstances where the VAT was paid and collected in breach of EU law. The High Court found against HMRC, holding that the Littlewoods claimants were entitled to compound interest where VAT had been overpaid.

    Gulf Cooperation Council (GCC) adopts draft VAT framework

    Officials from the GCC's Financial and Economic Cooperation Committee have adopted a draft VAT framework agreement that will form the basis of the GCC VAT regime. The agreement will have to be approved by the individual governments of the GCC countries (namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). However, no details have been provided yet as regards the timeframe for introducing VAT across the region or what the likely rates would be.

    Our global tax alert provides further details.

    Other global tax alerts

    Please see links to a selection of our tax alerts in respect of the following developments. Additional articles are available in our global tax alert library.

    New Zealand: A ruling by the Inland Revenue on a particular employee share scheme reveals a possible softening in the approach of the authorities.

    Norway: The Government has proposed new rules deferring capital gains tax on transfers to group companies resident in a territory with which Norway has a tax treaty.

    Sweden: The Treasury has released a proposal to implement the OECD's common reporting standard for the automatic exchange of information.

    India: The Delhi Tribunal has ruled that the concept of base erosion and profit shifting is irrelevant to judicial decisions, which must be based on the law set out in statute.

    United States: A private letter ruling issued by the IRS states that royalties for broadcasting television channels are not subject to withholding tax as motion picture royalties under a tax treaty.

    Chile: The tax authorities have released guidance on the taxation of passive income in controlled foreign companies.

    Other publications

    Please speak to your usual EY contact, or email us at eytaxnews@uk.ey.com, if you would like to receive a copy of our regular indirect tax newsletter, or information about our other publications.

    Further information

    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.

    Chancellor announces summer Budget for Wednesday 8 July

    Email Claire Hooper

    + 44 20 7951 1608

    OECD publishes revised discussion draft on base erosion and profit shifting Action 7 (permanent establishment)

    Email Gary Mills

    + 44 20 7951 1608

    First-tier Tribunal rejects double tax relief claim for underlying tax

    Email Mike Gibson

    + 44 20 7951 0568

    P11D dispensations to cease to be effective from April 2016

    Email David Paul

    + 44 20 7951 1449

    First-tier Tribunal considers the VAT treatment of clothing provided free of charge to retail store staff

    Email Simon Baxte

    + 44 20 7951 3966

    For other queries or comments please email eytaxnews@uk.ey.com.

    Back to the top

  • 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.

    Competing priorities

    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.

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  • Seizing the opportunity in Global Compliance and Reporting

    Global Compliance and Reporting (GCR) is at a tipping point, with risks on the rise. Many companies distribute responsibility for GCR processes throughout their organization, creating a patchwork. Local jurisdictions are rewriting regulations, focusing more intently on the collection of tax revenues and sharing more taxpayer information across borders.

    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 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.

    Helping you 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.

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  • 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.

    Our approach

    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. It’s no wonder that leading companies are focusing their efforts on:

    • 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.

    Fortunately, an increasing number of organizations are currently either planning or embracing a wider process of change for their mobility teams.

    Unintended tax compliance obligations

    These travelers are increasingly creating unintended tax compliance obligations, and the resulting risks are not just personal. They are 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.

    Will your tax risks prompt a tax audit?

    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.

    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 short-term business traveler-related risks before they occur. Where controversy has already arisen, our 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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