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Midweek Tax News


A weekly update on tax matters to 21 April 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.

Last week's Midweek Tax News reported on the manifestos of the Conservative and Labour Parties. Since then, the Liberal Democrats, Greens, UKIP and the SNP have released their manifestos.

The Liberal Democrats aim to build a “fair, free and open society” with a strong economy. The Green Party's priorities are environmental protection and a more equal society, while the UKIP manifesto sees Britain as a “proud, independent, sovereign nation” outside the EU. The SNP want to make Scotland stronger at Westminster.

Tax policies proposed by the Liberal Democrats include:

• Increasing the income tax threshold to £12,500, reforming capital gains tax and refocusing entrepreneurs' relief

• Raising up to £1.5bn from a UK-wide ‘high value property levy’ on homes worth over £2mn, and restricting access to non-domiciled status while increasing the associated charges

• Maintaining the bank levy and introducing a time-limited supplementary corporation tax for the banking sector

• Reforming business rates and replacing them with a land value tax in the long term

• Introducing a general anti-avoidance rule (as opposed to the existing anti-abuse rule) which would outlaw contrived structures designed purely or largely to avoid tax

UKIP tax policies include:

• Increasing the personal allowance to £13,500 and introducing a new 30% income tax rate for those earning between £43,500 and £55,000 with a 40% rate thereafter

• Scrapping inheritance tax and cutting business rates for small businesses

On tax, the Green Party is proposing to:

• Raise £30bn a year by 2019 by cracking down on tax avoidance and evasion and raise £20bn a year with a financial transaction tax on banks

• Introducing a wealth tax of 2% on people worth £3mn or more and raising the additional rate of income tax to 60%

The SNP is proposing to:

• Support an increase in the additional rate of income tax to 50%, and bring in a mansion tax, a new bonus tax, a crackdown on avoidance and the abolition of non-domiciled status

• Give the Scottish Parliament full fiscal responsibility for Scotland

On 16 April 2015, the OECD published its discussion draft on BEPS Action 11 (improving the analysis of BEPS). Action 11 focuses on improving the availability and analysis of data about BEPS. This includes monitoring the implementation of the Action Plan and evaluating the effectiveness and economic impact of actions to address BEPS on an ongoing basis.

This discussion draft sets out the context and background to the work on Action 11, and includes chapters that focus on three key areas:

• Chapter 1 is an assessment of existing data sources relevant to BEPS analysis.

• Chapter 2 provides potential indicators of the scale and economic impact of BEPS together with their various strengths and limitations.

• Chapter 3 considers existing empirical analyses of BEPS and proposes two complementary approaches to estimating its scale.

The draft does not discuss any new tools to monitor and evaluate the effectiveness and economic impact of the actions taken to address BEPS on an ongoing basis, or new types of data that might be useful in helping to analyse BEPS in the future. Stakeholder and public input is sought in those two areas before making recommendations. Comments on the discussion draft are sought by 8 May 2015 at the latest. A public consultation meeting on Action 11 will be held in Paris at the OECD Conference Centre on 18 May 2015.

During the G20 meeting in Washington on 16-17 April 2015, it was announced that Australia and the UK have formed a joint working group to “further consider and develop initiatives in relation to diverted profits by multinational enterprises”, to start work after the UK general election. Although the announcement concerned only the UK and Australia, an official press release from the Australian Government stated that the working group would be open to all G20 members. For further details, please see our global tax alert.

The press release made it clear that any initiatives will be consistent with the OECD's BEPS agenda and other international initiatives such as the automatic exchange of information. In an interview after the G20 meeting, the Australian Treasurer, Joe Hockey, said that he wanted to go “further and faster” than the OECD on BEPS although he did not see the need to introduce a new separate diverted profits tax like the UK has done. However, the working group will build on the experience of the UK's diverted profits tax.

New HMRC procedures for enterprise investment scheme (EIS) and venture capital trusts (VCTs)

HMRC has issued guidance on changes it is making to the compliance procedures for the EIS and VCTs. The guidance applies to applications for advance assurance and EIS compliance statements for investments made on or after 6 April 2015.

With immediate effect, HMRC will not process advance assurance applications in respect of EIS or VCTs where they relate to companies that, in general, are more than seven years old and have not received risk finance investment in the past or have received more than £10mn of risk finance investment funding. HMRC will process EIS compliance statements in respect of investments outside these limits but warns excess amounts may have to be recovered at a later date.

The guidance reflects the need to ensure that EIS and VCTs are compliant with the EU's State Aid rules. The limits given by HMRC are consistent with the EU's general exemption for State Aid, but the UK will enact more generous rules if approval for them can be obtained from the European Commission.

Supreme Court hearing on the VAT treatment of gaming machine income

The Supreme Court yesterday heard the taxpayer's appeal in the case of The Rank Group plc. This case concerns whether the takings from certain gaming machines were eligible for the VAT exemption for gaming activities applicable at the material time, namely 1 October 2002 to 5 December 2005. The point was important since if the taxpayer was right that the takings from the disputed machines enjoyed the exemption being claimed, it would then be entitled to invoke the EU principle of fiscal neutrality to assert that the takings from different machines, which did fall to be taxed under the domestic VAT provisions, ought not to have been taxed, and that it was entitled to reclaim the VAT it paid in respect of such takings. The Court of Appeal held that the takings from the disputed gaming machines were properly subject to VAT in the same way as other gaming machines and there was no breach of fiscal neutrality.

The issues, both in this case and in other related litigation that involves the taxpayer, gaming machines and fiscal neutrality, are detailed and complex. Any businesses with operations that involve gaming machines may wish to ensure that they are aware of the practical issues arising from this litigation.

Returns for non-resident capital gains tax (NRCGT)

As reported in last week's Midweek Tax News, HMRC has published an on-line tax return (the NRCGT return) with regard to the new charge to capital gains tax for non-residents who dispose of UK residential property. From 6 April 2015, all non-residents who dispose of UK residential property must report the disposal via the on-line form which must be submitted within 30 days of the completion of the sale. This means that the first forms may potentially be due by 6 May 2015.

The new law includes a requirement for individuals to file a NRCGT return even if they are already registered for self-assessment and, therefore, required to file an annual tax return. However, only individuals who are not registered for self-assessment at the time of disposal need include the calculation of any gain and whether payments on account are due on the NRCGT return. The current version of the online return is not clear in this respect and HMRC has confirmed that changes to fix these issues are forthcoming. In addition, we expect that the legal requirement for individual taxpayers to provide an estimate of their income for the purposes of determining the rate of tax which should be applied to their gain will be included in the updated NRCGT return.

European Court judgment on the VAT treatment of service charges for leasehold property

In the Polish case of Wojskowa Agencja Mieszkaniowa w Warszawie, the Court of Justice of the European Union (CJEU) considered the VAT treatment of service charges made by a landlord to its tenants for the provision of utilities (water, electricity and heating) and refuse collection.

The Polish tax authorities considered that the service charges constituted further consideration for the supply of the property and, therefore, followed the same VAT liability as the rents payable under the lease. The CJEU was required to consider whether the taxpayer provided a single composite supply of the property or several distinct supplies which needed to be assessed separately for VAT purposes. The CJEU held that the existence of individual meters and billing which reflected the tenant's own levels of consumption indicated that the provision of utilities should be treated as separate supplies from the letting of the property. As regards refuse collection, the CJEU held that if the tenant had the choice of supplier or could contract directly with the supplier (even if, for reasons of convenience, the tenant did not exercise that option), that pointed to the existence of a separate supply.

This judgment appears to be in line with current UK practice. HMRC states that where a landlord is obliged under the terms of the lease to provide services relating to the general upkeep of the building, the service charge follows the same VAT liability as the rents payable under the lease (the implication here being that, where the landlord is not so obliged, the service charge is consideration for a separate supply). HMRC also states that separate charges for metered supplies of utilities used by tenants are consideration for separate supplies.

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.

Austria: The Advocate General has opined that Austrian goodwill amortisation does not constitute State Aid but does infringe the freedom of establishment.

Iraq: The Government has approved the 2015 federal budget which cuts income tax brackets and exemptions by half, and introduces new taxes and levies.

India: The Tax Tribunal has ruled that a reduced treaty rate of withholding tax is applicable even in the absence of a permanent account number.

Israel: The tax authorities have published a draft circular regarding the internet activity of foreign companies to address the related income tax and value added tax implications.

Russia: The President has signed a law postponing the deadline for notifications on participation in foreign organisations. The deadline has been postponed from 1 April 2015 to 15 June 2015.

Other publications

Please speak to your usual EY contact, or email us at, 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.

The Liberal Democrats, UKIP, the Greens and the SNP issue their manifestos

Email Chris Sanger

+ 44 20 7951 0150

OECD releases draft on base erosion and profit shifting Action 11 (improving analysis)

Email Mike Gibson

+ 44 20 7951 0568

Australia and the UK form joint working group to tackle diverted profits

Email Claire Hooper

+ 44 20 7951 2486

For other queries or comments please email

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