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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 24 February 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.

    Following on from last week's public consultation on Action 4 (interest deductibility) of the base erosion and profit shifting (BEPS) agenda, Claire Hooper and Jo Myers will be discussing the latest news regarding the OECD's proposals; the policy concerns behind them; the potential impact and issues if the proposals were to be implemented; and the UK's expected response. The UK Government is a key supporter of the OECD's work on BEPS so there is a significant prospect of a change to the UK interest relief rules as a result of the OECD's work on interest deductibility.

    To recap, the OECD discussion draft on Action 4 considers best practice on the deductibility of interest. In particular, it proposes restricting interest relief either by reference to an allocation of the external net interest of the global group or by applying a group-wide ratio or a fixed ratio of interest to earnings or assets. Alternatively, it considers a combination of these methods. It specifically excludes consideration of the arm's length principle as a possible recommendation of best practice.

    Register now to join this webcast to hear the latest on this potentially highly significant area.

    In the case of Taylor Wimpey plc, the First-tier Tribunal considered the application of the ‘builders' (input tax) block’, the effect of which is to prevent developers from recovering VAT on certain goods that are incorporated in new homes. The disputed issue was whether the taxpayer was entitled to make a substantial retrospective ‘Fleming’ claim seeking recovery of VAT incurred on white goods (ovens, washing machines, dishwashers etc) and carpets installed in newly built homes in the period between 1973 and 1997. The taxpayer argued that the builders' block did not apply to the claim items or, if it did apply, that it was unlawful under EU law and should be disapplied.

    In an earlier decision, the Tribunal had found that, as a matter of UK law, the builders' block did apply to the claim items. However, as a matter of EU law, the Tribunal had found that the blocking order was probably unlawful. On this basis, the taxpayer had a choice whether to treat its supplies of the claim items as exempt under UK law or standard-rated under EU law. If the taxpayer opted to rely on EU law, it would be entitled to recover the input tax at stake in this appeal. However, this raised the issue of whether the taxpayer would then be required to offset the resulting output tax against its input tax claim. If so, HMRC could refuse the taxpayer's claim in its entirety, notwithstanding the fact that HMRC was out of time to assess.

    A further hearing was required to resolve this one outstanding issue. In this regard, the Tribunal held that national time limits and the inability of HMRC to assess for the output tax were irrelevant, as the taxpayer's right under EU law was only to the net amount of input tax after output tax. Accordingly, the entire appeal has now been dismissed.

    Given the sums at stake, this decision may well be appealed. Any housing developers who have submitted (or are considering submitting) similar claims may wish to stay abreast of developments in this litigation.

    The Upper Tribunal (UT) has reversed the decision of the First-tier Tribunal (FTT) by allowing the taxpayers' appeals in Tower Radio. The case considered an arrangement where bonuses were paid in shares rather than in cash so as to enjoy the beneficial tax treatment for restricted securities provided to employees. According to the UT, the ‘ultimate question’ was whether the shares given to the employees should be treated as money or as restricted securities, when the legislation is read purposively and taking a realistic view of the facts. After a careful review of the facts, the UT answered that the shares were restricted securities and, hence, the advantageous tax treatment should apply. The UT felt that the FTT had erred when it applied the Ramsay principle to ask a broader ‘ultimate question’ of whether the legislation in question was intended to apply to schemes such as the one under consideration.

    Both the FTT and the UT referred extensively to the UBS AG and Deutsche Bank cases. These two cases, which are being heard together, are on similar remuneration schemes. They have now been appealed to the Supreme Court whose decision may affect any subsequent appeals in Tower Radio. Groups that have implemented bonus arrangements using restricted securities may wish keep developments in all these cases under review.

    HMRC has announced that late filing penalties for submitting PAYE information under the real time information regime will not be applied for delays of three days or less. The new regime has applied to employers with 50 or more employees from 6 October 2014 and is extended to all employers on 6 March 2015. Where an employer has already received a penalty because it filed three days late or less, HMRC is encouraging use of the online appeal process. Employers should complete the “Other” box and add “Return filed within 3 days”.

    Late payment penalties will continue to be reviewed on the basis of risk assessment rather than being issued automatically.

    Tribunal finds that property developer can hold property as an investment

    In the case of Terrace Hill (Berkeley) Ltd, the First-tier Tribunal considered whether the taxpayer's activity in relation to the development of an office property was a trading activity or an investment, and whether penalties were due for an alleged negligent return.

    In its judgment, the Tribunal allowed the appeal in full, holding that the acquisition (and by inference the disposal) of the property was properly accounted for as an investment. Although starting with a presumption that a property developer will often hold development sites as trading stock, the Tribunal found that this was not determinative of the question of whether the property acquired should be so treated. The Tribunal was convinced by witness evidence that the property was acquired with the intention of being held as an investment, notwithstanding some inconsistent and incomplete contemporaneous documentation on which HMRC focused its trading arguments.

    The case illustrates the fact-specific nature of trading / investment disputes and shows that well-articulated witness evidence that deals directly with perceived weaknesses in documentation can be enough to discharge the taxpayer's burden of proof.

    The secondary issue of the penalty imposed by HMRC accordingly fell away, although the judges held that if they were wrong on the substantive issue, there was no neglect in the filing of the return and, therefore, no penalty was appropriate.

    Court of Appeal to consider taxpayer appeal in stamp duty land tax (SDLT) case Project Blue

    The case of Project Blue concerns the liability to SDLT arising on the sale of the Chelsea Barracks by the Ministry of Defence to a property developer. The Upper Tribunal found that SDLT anti-avoidance should apply to the transaction. The case will now be heard by the Court of Appeal, although a date for the hearing has not been set.

    HMRC updates guidance on new penalties for stamp duty reserve tax (SDRT)

    From 1 January 2015, the penalty regime for SDRT has been toughened and is now aligned with the system for most other taxes. For example, the penalty for being six months late notifying HMRC of a relevant share transaction has increased from £100 to £400 or 5% of the tax due, whichever is higher. There are also new penalties for failing to pay SDRT on time, starting at 5% of the tax due for paying 31 days late. Previously, late payment penalties did not apply until the tax was a year late.

    Groups carrying out internal restructuring should note that the penalties for late notification can potentially apply to transfers of shares within a group even when stamp duty relief means that no tax is actually payable.

    Upper Tribunal takes purposive view of employee benefit trust contributions

    In its recent decision in the Scotts Atlantic Management case the Upper Tribunal (UT) dismissed the taxpayers' appeals, holding that corporation tax deductions were not available for particular contributions to employee benefit trusts. It agreed with the previous decision of the First-tier Tribunal (FTT) that the contributions were not deductible under general principles due to duality of purpose. It also held, contrary to the FTT decision, that the contributions also fell within the scope of specific anti-avoidance provisions denying deductibility for contributions where no taxable benefit arises to the beneficiaries.

    The transactions involved the subscription by the taxpayer company of shares at a premium in a new company, followed by the grant of an option to the employee benefit trust to subscribe for more shares at par. The result was that the value of the original shares fell sharply. The taxpayer claimed that the deduction arising from this loss in value fell outside specific anti-avoidance provisions which applied only where a ‘payment of money or transfer of assets’ occurred. The UT held that a ‘payment of money’ had occurred on the original subscription for shares, and the subsequent loss in value was in respect of that subscription. In the Tribunal's view it was not Parliament's intention that the anti-avoidance provisions should be circumvented by such an operation and considered it was possible to interpret the provisions so as to bring the loss of value within their scope without placing undue strain on the words.

    Submitting accounts to HMRC under new accounting standards

    With the introduction of the new UK GAAP accounting standards FRS 101 and FRS 102, HMRC has issued updated guidance for companies submitting accounts with their return. HMRC requires that companies tag their accounts with an Extensible Business Reporting Language (XBRL). The latest XBRL supports the new UK GAAP accounting standards and must be used where accounts prepared under these standards are submitted on or after 1 April 2015. However, accounts prepared prior to 1 April 2015 under the old XBRL do not have to be re-tagged even if submitted after that date.

    UK and Algeria agree comprehensive double tax treaty

    The UK and Algeria signed a double tax treaty on 18 February. The treaty will come into force once it has been ratified in both countries and diplomatic notes exchanged,.

    Loss on ignition testing regime for waste fines in respect of determining landfill tax liability

    HMRC has published, for external comment, draft legislation and guidance concerning the introduction, with effect from 1 April 2015, of a loss on ignition testing regime to help identify the correct landfill tax liability of fines produced from the processing of waste at mechanical treatment plants (waste fines). Loss on ignition is a test for determining the organic content of material. The test will inform whether the waste is liable to the lower rate of landfill tax. The guidance sets out the detail of the processes to be followed. Comments on the draft legislation and guidance are invited by 10 March 2015.

    European Union launches work on fairer and more transparent approach to taxation

    In December 2014, the European Commission said it will clamp down on tax evasion and tax avoidance and ensure that taxes are paid in the country where the corresponding profits are generated. The Commission has now committed to present a tax transparency package this March which will include a proposal for the automatic exchange of information on tax rulings. With many elements of the Commission's plans overlapping with the OECD's base erosion and profit shifting agenda, groups may wish to continue monitoring new developments closely.

    For more details, see our Global Tax Alert.

    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.

    United States: This month's federal budget proposal features several international tax elements that may be relevant to investors into the US.

    Sweden: The EU Advocate General has opined that the Swedish limitation on the deductibility of foreign exchange losses is in line with EU law.

    Spain: The tax authorities have issued a ruling on the minimum taxation of leveraged Spanish real estate investment trust structures.

    Kenya: The taxation regime for the oil and gas, and mining sectors has been revised as of 1 January 2015, including new rates of withholding tax.

    Canada: The Department of Finance has announced a proposal to increase the capital cost allowance rates for property acquired for use in liquefied natural gas facilities.

    Puerto Rico: The Governor has introduced a VAT bill to the Legislative Assembly proposing a VAT rate of 16% from 1 January 2016.

    Benin: The 2015 Finance Act has imposed new fees on certain share transfers and public procurements.

    Togo: The 2015 Finance Act has amended rules relating to the deduction of losses incurred by companies subject to corporate income tax in Togo.

    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.

    Tax Focus web seminar on Thursday, 26 February 10:00 am: Potential restrictions on deductibility of interest

    Email Claire Hooper

    + 44 20 7951 2486

    VAT recovery on white goods and carpets installed in newly built homes

    Email Ali Anderson

    + 44 20 7951 5248

    Taxpayer wins appeal on paying bonuses in shares

    Email James Hannam

    + 44 20 7951 2686

    Penalty regime for PAYE real time information filing relaxed

    Email Nigel Duffey

    + 44 20 7951 9586

    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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    Alternative Dispute Resolution: a new chapter emerges

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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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