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
Telecommunications, Media and Technology VAT
BEPS project: OECD actions and this year’s outlook
Global tax policy outlook for 2015
2014 Global Transfer Pricing Tax Authority Survey
WSJ features Jay Nibbe on CFO tax preparedness
Global transfer pricing tax authority survey
Indirect Tax Briefing: planning for the future
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 14 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.
Labour and Conservative Parties launch their general election manifestos
Both the Labour and Conservative Parties have now published their manifestos. On Monday, Labour concentrated on establishing its credentials for fiscal responsibility. Yesterday, the Conservative Party offered its policies for every stage of people's lives. However, most of the tax policies included in the manifestos had been trailed in advance.
In summary, the Labour Party has pledged to:
• Not increase the rate or scope of VAT; not increase the rates of national insurance contributions, or the basic and higher rates of income tax; and not reduce tax credits
• Increase the additional rate from 45% to 50% and reintroduce a bankers' bonus tax
• Crackdown on tax avoidance by implementing their ten-point plan (see our article below for further details)
• Increase the bank levy (the increase was previously mooted by Shadow Chancellor Ed Balls to raise £800mn, making Labour's proposed increase the same size as the actual increase announced in Budget 2015)
• Cut and then freeze business rates (it was previously announced that this is to be funded by increasing the main rate of corporation tax to 21%, although the manifesto itself is not explicit on this point)
• Provide certainty on tax for the oil and gas industry
The Conservatives have pledged to:
• Not increase VAT, income tax or national insurance, while increasing the personal allowance to £12,500 and the higher rate threshold to £50,000 over the lifetime of the next Parliament
• Increase the tax-free allowance for inheritance tax (see our article below for further details)
• Review making country-by-country reporting returns publicly available and implement existing policies on tax evasion, avoidance and automatic exchange of information
• Implement the review of business rates announced in Budget 2015 with effect from 2017 and to consult on business rates relief for local papers
• Make the Office of Tax Simplification permanent and expand its role
• Set a permanent level for the annual investment allowance significantly higher than at present
• Give English MPs a veto over matters that only affect England, including income tax
Breakfast briefing on the latest base erosion and profit shifting (BEPS) developments at 8:00 am on Wednesday, 22 April
The OECD continues to publish a high volume of material on BEPS. EY's International Tax Services team is giving a breakfast briefing to discuss the latest series of reports. Our focus will be on making sense of the information coming from the OECD and predicting the final outcome to identify ways to respond.
We will address developments that have occurred since our last seminar including:
• Implementation issues on Action 13 (country-by-country reporting) and Action 15 (multilateral tax treaty amendments)
• Updates on Action 4 (interest deductibility)
• The new report on Action 3 (controlled foreign company rules)
• EU action linked to the BEPS initiative such as the latest on State Aid investigations; the impact on EU rulings and unilateral Advance Pricing Agreements; and changes to the EU Parent-Subsidiary Directive
In addition to summarising the information released and predicting next steps we will also seek to identify any key actions being taken by multinationals in response to the BEPS initiative.
To register for the briefing, please click here.
Revised papers on base erosion and profit shifting Actions 6 and 7 due later this month
The OECD is scheduled to release revised discussion drafts on BEPS Action 6 (treaty abuse) and BEPS Action 7 (permanent establishment status) in April. These follow up from the original discussion draft on Action 7 issued in October 2014 and on follow up work on Action 6 issued in November 2014. There will be a 30 day consultation period once the revised discussion drafts are released.
Discussion drafts are also due in April on BEPS Actions 8 – 10 (transfer pricing) in respect of cross contribution agreements, and the ownership of intangibles and hard-to-value intangibles.
Public consultations are scheduled for 11 May on Action 12 (disclosure rules) and for 12 May on Action 3 (controlled foreign company rules).
Please see our global tax alert for details of the discussion draft on Action 3 released on 3 April.
Other UK developments
Labour Party pledges crackdown on tax avoidance
The Labour Party has proposed a ten point plan against tax avoidance to be implemented if they form the next Government. The plan brings together a number of previously announced steps including restrictions on the quoted Eurobond exemption for deducting income tax from interest; tackling cases where employment is disguised as self-employment by introducing strict deeming criteria; and charging stamp duty reserve tax on hedge funds' synthetic share positions. The rules on carried interest for private equity transactions will be reformed to restrict the circumstances where it is taxed as a capital gain rather than income to when the investor has risked their own funds. As also previously announced, the Labour Party proposes that country-by-country reporting returns and the UK's Overseas Territories and Crown Dependencies' registers of beneficial ownership should be made public.
The plan further demands that HMRC present a report on all current measures and processes for tackling tax avoidance and evasion, in preparation for an immediate review of its culture and practices. In addition, the Bank of England will be told to focus on risks from the informal economy, including avoidance, evasion and the tax gap, in delivering its financial stability objective.
The Labour Party plan to publish a draft Finance Bill, focusing on anti-avoidance, on their first day of government.
Conservative Party promises to increase inheritance tax threshold for residential property
If they form the next Government, the Conservative Party has proposed increasing the inheritance tax allowance by £175,000 per person but only in respect of their ‘main residence’. This is in addition to the current threshold of £325,000 and the new allowance would also be transferable to a spouse. This would allow a married couple to pass on assets of up to £1mn without attracting an inheritance tax charge, as long as at least £350,000 of the assets consists of eligible residential property. The new allowance would be tapered for property worth over £2mn, reducing to nil at £2.35mn. The allowance would come into effect from April 2017 and be retrospectively transferable from a spouse who had died before that date.
This relief would make it tax efficient to ensure that at least £350,000 of a married couple's estate is kept in the form of eligible property rather than other assets.
The proposal is to be funded by reducing the tax relief for pension contributions for people who earn more than £150,000. The details of this restriction remain unclear but it is believed to involve a tapered reduction in the annual allowance of £40,000 for earnings above this level.
Proposed reforms of non-domiciled status
The Labour Party has proposed to abolish non-domiciled status with no new claims for the status accepted from April 2016. For existing ‘non-doms’, there will be a five year transitional period. There will also be a new temporary residence exemption for students and others residing in the UK for a short period of time, understood to mean for two to three years. The policy is included in the Labour Party manifesto as part of its crackdown on tax avoidance.
Meanwhile, the Conservative Party manifesto pledges to increase the annual levy paid by those with non-domiciled status (although this may refer to the measures already announced in Budget 2015) and deal with abuses to the regime.
The Liberal Democrats have stated that they want to increase the annual levy for ‘non-doms’ so as to raise an additional £500mn in the next Parliament as well as prevent the status from being inherited.
Upper Tribunal considers whether compromise agreement precluded VAT recovery assessment
In the case of Southern Cross Employment Agency Ltd, the Upper Tribunal considered whether HMRC was entitled to issue an assessment to recover amounts of VAT paid to the taxpayer in error.
The taxpayer, who supplied dental nurses to dental practices, submitted a claim for repayment of overpaid VAT on the basis that its supplies, which had been treated as standard-rated, should have been treated as exempt from VAT. The taxpayer maintained that it would not be unjustly enriched by full payment of the amount claimed. However, the taxpayer accepted (on a ‘without prejudice’ basis) a proposal from HMRC to repay 74% of the claim. HMRC subsequently considered that the taxpayer had been right to charge VAT on its supplies, such that there had been no overpayment of VAT and the amounts paid to the taxpayer had been paid in error. HMRC, therefore, issued an assessment to recover the incorrectly paid amounts.
The First-tier Tribunal held that HMRC entered into a binding compromise agreement in full and final settlement of the taxpayer's VAT repayment claim, and consequently was precluded from issuing a VAT recovery assessment. The Upper Tribunal upheld this decision, concluding that VAT law did not bar HMRC from entering into a binding agreement with the taxpayer; that such a compromise agreement would not have been void; and that, on the facts, a contractual agreement was entered into.
This decision may be relevant to any taxpayers who have reached (on a ‘without prejudice’ basis) a compromise agreement with HMRC on the amount of a VAT repayment claim, where it subsequently transpires that the amount paid by HMRC was paid in error.
Capital gains tax for non-residents
HMRC has now published an on-line tax return as well as guidance 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 conveyance of the property (that is, the completion of the sale). This means that the first forms may potentially be due by 6 May 2015.
EY seminar in London on UK immigration rules at 8:00 am on Wednesday, 29 April
EY's Global Immigration Practice will host a seminar at One More London to address developments in respect of the UK's immigration rules including additional changes which might be expected in an election year. We will consider the likely implications for employers, assignees and business visitors.
For further information and to register your interest in attending, please click here.
China VAT School: Training day in London on 24 April
EY is holding one of its highly successful China VAT School training events on 24 April in London. The day-long event will give attendees a technical and practical understanding of the Chinese VAT regime, systems and processes.
The complexity and nature of the Chinese VAT system and the many changes over the past three years require dynamic VAT management by companies wishing to succeed in the Chinese market. The China VAT School will help delegates to improve their understanding of VAT challenges in China; to be proactive in risk management potential; and to consider any VAT optimisation possibilities for their organisations. The interactive training will involve a combined theoretical and practical approach.
To join presenter Stephane Rinkin, tax partner at EY in Shanghai, please register here. The cost is £495 plus VAT per delegate.
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.
Spain: The European Commission has approved the extension and enhancement of the tax regime applicable to Spain's Canary Islands Special Zone, which includes reduced corporate income tax rates and other incentives.
Namibia: The Finance Minister has announced his budget proposals for 2015-2016. Several measures have been introduced including a reduction of the main rate of corporate tax by 1% to 32%.
Brazil: The Brazilian tax authority has issued a new rule which requires individuals aged 16 and over, who are included as a dependent on an income tax return, to obtain a tax identification number.
Greece: Taxpayers are now required to follow a specific procedure when changing their tax status from a Greek tax resident (filing for worldwide income) to a non-resident (filing only for Greek source income).
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.
Labour and Conservative Parties launch their general election manifestos
+ 44 20 7951 2486
Breakfast briefing on the latest base erosion and profit shifting developments at 8:00 am on Wednesday, 22 April
+ 44 20 7951 1345
Revised papers on base erosion and profit shifting Actions 6 and 7 due later this month
+ 44 20 7951 0568
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, 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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