As the proliferation of changes associated with indirect taxation and new legislation spreads, it’s essential to manage your indirect taxes. See the latest developments worldwide.
Indirect tax developments in 2015
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BEPS project: OECD actions and this year’s outlook
Global tax policy outlook for 2015
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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. 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
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.
The Liberal Democrats, UKIP, the Greens and the SNP issue their manifestos
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
OECD releases draft on base erosion and profit shifting (BEPS) Action 11 (improving analysis)
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.
Australia and the UK form joint working group to tackle diverted profits
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.
Other UK developments
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.
Please speak to your usual EY contact, or email us at email@example.com, 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.
The Liberal Democrats, UKIP, the Greens and the SNP issue their manifestos
+ 44 20 7951 0150
OECD releases draft on base erosion and profit shifting Action 11 (improving analysis)
+ 44 20 7951 0568
Australia and the UK form joint working group to tackle diverted profits
+ 44 20 7951 2486
For other queries or comments please email firstname.lastname@example.org.
- 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, 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.
- 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. 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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Read our news, analysis and insight into measures announced in Budget 2015.
Economics for business
Tax Insights examines the journey ahead
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