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Midweek Tax News


A weekly update on tax matters to 17 November 2015

Midweek Tax Newsprovides 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.

The summer Finance Bill is expected to receive its Royal Assent later today and consequently become law. This is just a week before the Autumn Statement begins the cycle for next year's Finance Bill, draft clauses for which are to be published on 9 December.

This year's Autumn Statement is combined with the spending review, and we expect many of the announcements to be linked to the Government's expenditure plans rather than taxation. However, there were a number of significant consultations on tax over the summer and whilst we may get some news on these as part of the Autumn Statement, we expect to receive most of the detail on how HMRC intends to take these forward when the draft Finance Bill clauses are published two weeks later.

Of particular interest to business would be news on the consultation on Improving Large Business Tax Compliance, which included proposals for groups to publish their tax strategy and a suggestion that they sign up to a code of practice. We expect a response to this consultation within the next few weeks. Staying with the theme of compliance and anti-avoidance, we are expecting updated guidance on diverted profits tax and the Government may give more detail on its strategy for implementing the OECD's final reports on base erosion and profit shifting (BEPS). In particular, we may hear further developments on the proposed anti-hybrid rules under BEPS Action 2 (hybrid instruments), which were subject to a consultation published in December last year and are due to have effect from 1 January 2017, as well as draft legislation to amend the patent box to take account of BEPS Action 5 (harmful tax practices).

Whilst we might hear something on the Government's review of business rates, we do not expect the detail until next spring, perhaps at the same time as the promised business tax road map. We also expect some new consultations, such as a consultation on corporate distributions.

Our next Tax Focus web seminar at 4:00 pm on Thursday, 10 December will provide an update on the Autumn Statement and the draft Finance Bill clauses. Register now to hear Claire Hooper, Chris Sanger and David Kilshaw who will consider how the clauses might impact you and your business.

The European Parliament's Committee on Tax Rulings and Other Measures Similar in Nature or Effect (TAXE) met with representatives from 11 multinational groups on 16 November. The meeting was scheduled to allow the groups in question a final chance to comment on the committee's proposals for corporate taxation in Europe.

The committee raised questions on transfer pricing practices and asked for reaction to the OECD proposals on base erosion and profit shifting (BEPS), which were endorsed by the G20 leaders at their summit in Turkey over the weekend. MEPs also floated proposals for mandatory public country-by-country reporting (CBCR) of profits, taxes and subsidies and for a common consolidated corporate tax base in the EU. In a subsequent press release, the committee noted that “most companies insisted that their tax practices were legal”. The committee also noted that “most were unenthusiastic about the idea of CBCR, especially if these mandatory reports were to be made public, and objected to the administrative burden that they would impose”.

During the meeting, the groups' representatives had expressed concern that the information in CBCR reports was of a technical nature and hence open to misinterpretation if made public. They had also expressed support for the BEPS agenda and confirmed that they look to follow all tax laws in the countries where they operate.

The TAXE Committee's recommended measures are likely to be voted on at the next plenary of the Parliament, in late November. A request has been made to extend the committee's lifespan by six months to address a number of ongoing issues.

In the judicial review case of Hely-Hutchinson, the High Court has quashed four closure notices that rejected the taxpayer's claim for capital losses. The losses in question were calculated in accordance with HMRC's Technical Note of 2003, following the decision in Mansworth v Jelley. That case related to the capital gains base cost of shares acquired by exercising unapproved employee share options or enterprise management incentive share options.

The taxpayer claimed that he had a legitimate expectation to claim those capital losses, in reliance on the 2003 Technical Note. He contended that his legitimate expectation could not and should not be frustrated by the withdrawal of the 2003 guidance by means of a Revenue and Customs Brief issued in 2009. The closure notices that relied on the Brief were, therefore, so conspicuously unfair as to amount to an abuse of HMRC's powers. In particular, the taxpayer pointed to the fact that other taxpayers in a similar position had been taxed in accordance with the 2003 Technical Note and that this was a breach of the principle that HMRC should treat taxpayers fairly and consistently.

The Court found that HMRC had been too narrow in its consideration of legitimate expectation and was required to consider whether it was fair to taxpayers to withdraw the 2003 guidance. The obligation to act fairly brought with it the obligation to perform a balancing exercise, to weigh taxpayers’ legitimate expectations generated by the 2003 Technical Note, and the consequent unfairness of withdrawing it in 2009, against the public interest in collecting the tax due under the statute, as now interpreted. All aspects of unfairness needed to be taken into account at this stage. In this case, the taxpayer was complaining of unfairness which went far beyond detrimental reliance and HMRC did not consider those other aspects of unfairness. The closure notices which were the product of the balancing exercise, therefore, needed to be quashed and the matter remitted back to HMRC to reconsider.

The case is also of wider significance since it takes forward the question of to what extent HMRC publications can be relied upon. In contrast with Gaines Cooper, in this case the Court found that the statements from HMRC were clear and unambiguous thus giving rise to a legitimate expectation by the taxpayer that he would be taxed in accordance with that Guidance.

In the case of DPAS Ltd, the Upper Tribunal considered whether the taxpayer, which operated dental payment plans on behalf of dentists, was entitled to exempt its charges made directly to patients for the provision of payment handling services. The taxpayer had restructured its contractual arrangements following the CJEU's judgment in the case of AXA UK plc, in which it was held that the service of collecting payments provided to dentists was specifically excluded from the exemption as it amounted to the collection of debts. In the current case, the First-tier Tribunal found in the taxpayer's favour holding that in relation to the restructured contracts, the service supplied by the taxpayer to patients was not debt collection, as debt collection could only be performed for the creditor (ie, the dentists) and accordingly, the taxpayer made exempt supplies of payment handling services to patients. HMRC appealed on a number of grounds.

The Upper Tribunal held that the restructuring of the contractual arrangements was not an abusive practice and to the extent that existing patients had signed and returned the acceptance form in relation to the new contractual arrangement, the taxpayer was supplying services to the patients. However, the Upper Tribunal did not reach any conclusion on whether these services were exempt, directing instead that final determination of this matter should be reserved until after the delivery of the CJEU judgment in the cases of Bookit Ltd and National Exhibition Centre Ltd (NEC). For patients who failed to sign and return the agreement, the Upper Tribunal held that the taxpayer did not supply services to those patients and to the extent that the First-tier Tribunal had found to the contrary, it had made an error of law. The Upper Tribunal also considered that the registration fee charged to patients was separate from the supplies of payment services and was, therefore, subject to VAT.

Any taxpayers who make charges for handling or processing payments may wish to consider the implications of this decision for their business and monitor the outcome of the Bookit and NEC cases.

EY submits its comments on draft country-by-country reporting (CBCR) regulations

We have sent our letter of representations on the technical consultation on draft UK regulations for CBCR to HMRC. In our comments, we note that the draft UK regulations are quite closely aligned with the model legislation included in the OECD's final report on base erosion and profit shifting Action 13 (country-by-country reporting and transfer pricing documentation). We suggest ways that this alignment could be enhanced, particularly in respect of the use and confidentiality of the data filed. We have also suggested that the conditions for voluntary filing of a country-by-country report be widened to accommodate cases where groups might otherwise find themselves having to file in multiple territories because they have been unable to file in the UK.

If you would like to receive a copy of these representations or discuss CBCR more generally, please get in touch with your usual EY contact.

Government sets out plans to comply with G20 commitments on beneficial ownership

The Government has published its proposals for complying with the G20 High Level Principles on Beneficial Ownership Transparency.

Measures include setting up the People with Significant Control (PSC) register which requires companies to report their beneficial ownership information in a register, which will be accessible to domestic competent authorities without reference to the companies in question. The Government will make the PSC register publicly accessible, with it expected to become operational in June 2016. The Government also intends to consult on extending beneficial ownership transparency to foreign companies investing in high value UK property or bidding for UK public contracts. In addition, trustees will be required to supply certain information on beneficial ownership, including when the trust gives rise to UK tax consequences, with this information accessible to UK competent authorities.

The PSC register was set up by the Small Business, Enterprise and Employment Act 2015. Other measures will be implemented in 2017 through new money laundering regulations, which will also enact the 4th EU Anti-Money Laundering Directive.

HMRC announces major restructuring plans

HMRC is intending to restructure its operations into 13 regional centres, streamlining services currently carried out across over 170 offices. In particular, HMRC plans to move more staff out of central London. The 13 new regional centres will be in Newcastle, Manchester, Liverpool, Leeds, Nottingham, Birmingham, Cardiff, Belfast, Glasgow, Edinburgh, Bristol, Stratford and Croydon.

This follows a rationalisation of the way HMRC deals with correspondence. Businesses are being asked to send correspondence to a central address rather than direct to their customer relationship managers. HMRC says that this enables routine enquiries to be efficiently processed.

Imminent HMRC deadline in respect of the VAT treatment of direct marketing services using printed matter

In July 2015, HMRC issued Revenue and Customs Brief 10/2015 setting out its approach to supplies of direct marketing services using printed matter which it considered had been incorrectly treated as zero-rated supplies of delivered goods (rather than standard-rated supplies of direct marketing services). HMRC accepted that its previously published guidance was not clear, and outlined transitional and settlement arrangements within the Brief. The use of the transitional arrangements meant that no retrospective assessment action would be taken by HMRC in respect of any supplies made prior to 1 August 2015 where the supplier, having misunderstood the former guidance, had incorrectly zero-rated a separate single supply consisting of either addressed or unaddressed mail only. The Brief also set out terms available to businesses whose supplies of direct marketing services prior to 1 August 2015 did not come within the scope of the transitional arrangements to settle their outstanding VAT liabilities. In both cases, HMRC indicated that suppliers wishing to take advantage of these arrangements should notify HMRC of their intentions by 30 November 2015.

Suppliers of direct marketing services using printed matter, such as charities, may wish to consider their position, as failure to comply with the transitional or settlement arrangements in the Brief (if appropriate) may result in the supplier being held liable for VAT on the full value of supplies of direct marketing services using printed matter.

HMRC reconsiders treatment of NHS surcharges

HMRC has recently reconsidered its view on the tax treatment of NHS surcharges where these are paid by employers on behalf of employees. Because the surcharge must be paid upfront and is part of the visa process, HMRC has now decided that the costs of the NHS surcharge may be attached to the visa costs and be regarded as a travel facility in the same manner as airfares and train tickets. As such, where the costs can be attributed to a particular journey from overseas to the UK, a deduction will be appropriate for the employee and for the accompanying or visiting spouse, civil partner and children. Similarly such costs are, therefore, disregarded for both Class 1 and Class 1A national insurance contributions (NICs). Where, however, there is no journey, for example because the cost relates to an extension to allow the employee to stay in the UK, the costs met by the employer will be general earnings and liable to income tax and NICs.

Plans for negotiating future double tax agreements

HMRC has announced that, following representations from interested bodies, its programme of work for the year ahead will include beginning negotiations on double taxation agreements with Nepal, Romania, Trinidad and Tobago, and Uzbekistan. HMRC will also proceed with amending the agreements with many other countries, including the US, Russia, Jersey, Guernsey and the Isle of Man. Furthermore, it is working on tax information exchange agreements with several jurisdictions.

Spanish Budget law modifies patent box and rules for monetising deferred tax assets

The Spanish Government has published its Budget law for 2016. Among many other measures, it has introduced amendments to the current patent box regime and the deferred tax assets (DTA) monetisation rules.

The Spanish patent box regime provides for a 60% exemption of the net income derived from the licensing of qualifying intellectual property (IP). Currently, to qualify for the regime a Spanish taxpayer must incur at least 25% of the cost of the IP asset. The new Budget law has replaced this requirement with a rule based on the modified nexus approach required under the OECD's final report on base erosion and profit shifting Action 5 (harmful tax practices). The changes enter into force on 1 July 2016 with transitional rules applying where the licensing agreement in question was entered into before that date.

Spanish corporate income tax allows the conversion of certain DTAs into payable tax credits provided some specific conditions are met. This rule applies to all companies, although it is particularly helpful for financial institutions looking to recognise their DTAs as capital. The new Budget law has introduced a limitation whereby the DTA to be converted cannot exceed the tax due corresponding to the fiscal year in which it was generated. In addition, a new annual duty of 1.5% of the DTAs of a company that intends to participate in the monetisation regime has been imposed.

Please see our global tax alert for more details.

Publication and agreement of consolidated OECD International VAT/GST Guidelines

As reported in Midweek Tax News last week, at the annual meeting of the OECD Global Forum on VAT on 5-6 November 2015, one of the key events was the agreement of the final package of the OECD International VAT/GST Guidelines as the “preferred international standard for the coherent and efficient application of VAT/GST to international trade in services” after which the OECD published its consolidated guidelines.

Our global tax alert is now available and provides further details about the guidelines.

Introduction of GST in India may be postponed

We understand that the introduction of GST in India may be postponed. It is now more likely that GST will be introduced later in 2016 or early 2017 (although we also understand that 1 April 2016 continues to be the official implementation date declared by the Government). The primary reason for the postponement is the delay in the passage of the Constitution Amendment Bill in the Upper House of the Indian Parliament. We also understand that draft GST legislation is expected to be released in early December 2015.

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.

Denmark: The Government has issued a report on simplifying the taxation of Danish investment funds and related tax reporting rules.

Italy: The application form and related instructions to elect into the recently introduced patent box regime have been published. The form must be filed by 31 December 2015 for the regime to apply in the current fiscal year.

Argentina: The Government has enhanced the tax benefits available for renewable energy projects.

South Africa: The Government has released a draft Carbon Tax Bill for public comment. The tax is proposed to be phased in from 1 January 2017.

Nigeria: The Federal High Court has allowed an appeal against a ruling by the tax authority that a company had a fixed base in Nigeria.


Other publications

Our new report, Are you ready for your close-up? How a new era of tax transparency is being woven together, offers an updated perspective on some of the different tax transparency and disclosure requirements around the world demonstrating how transparency is at the heart of the new tax landscape.

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.

Summer Finance Bill to receive Royal Assent today, 18 November, before the Autumn Statement next week

Email Claire Hooper

+ 44 20 7951 2486

European Parliament TAXE committee exchanges views with multinational groups

Email Mike Gibson

+ 44 20 7951 0568

Taxpayer succeeds in judicial review on HMRC change of interpretation on capital losses

Email Nigel Duffey

+ 44 20 7951 9586

Upper Tribunal considers the VAT treatment of payment handling services

Email Andrew Bailey

+ 44 20 7951 8565

For other queries or comments please email

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