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 3 March 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.
EY podcast on what to expect in the Budget
With the Chancellor of the Exchequer unveiling his 2015 Budget on 18 March, listen to Chris Sanger, Head of EY Tax Policy, and David Kilshaw, EY Private Client Services partner, as they discuss what to expect. They talk about their predictions, including possible hot topics and the likely content of the Finance Bill due to be published before the end of March. As this is the last Budget before this year's general election, they will also consider the potential process for the Budget measures.
First-tier Tribunal rules on availability of losses on an intra-group transfer of trade
The First-tier Tribunal decision in the Leekes case has found that, on the transfer of the whole of a loss making trade to another trading group company, losses in the trade transferred did not have to be streamed against profits of the transferred trade, if there is only one combined trade post-transfer. In the case in question, the acquiring company acquired a trade, together with associated brought forward losses, and combined that with its own trade, which HMRC agreed was the same trade for tax purposes. In certain circumstances, specific rules restrict the utilisation of tax losses transferred against profits of the activity transferred in (the streaming rules). HMRC felt that these specific rules did not apply as the whole trade was transferred, but it considered streaming was instead implied under the general provisions, which restricted relief to what the transferor would have been entitled to “had it continued to carry on the trade”. HMRC considered that this meant loss relief was limited to the profits the transferor would have made had it continued the transferred trade, but the taxpayer considered that this provision only defined the amount of available loss.
The Tribunal preferred the taxpayer's argument. It held that as a matter of commercial reality there was, post-transfer, only one trade, and that any tax legislation that required streaming of this combined trade would need to be explicitly stated rather than implied. Furthermore, it considered that the taxpayer's interpretation was more in line with commercial reality and gave rise to less need for the fictions that would have been necessary in order to trace the results of a trade that no longer existed separately.
This is an interesting decision which considers the legislation before the rewrite in 2010 but should still be considered in the context of the new legislation.
Accelerated payment notice (APN) regime extended to national insurance
Following Royal Assent to the National Insurance Contributions Act 2015, the APN regime will be extended to national insurance contributions (NICs), taking effect from 12 April. This means that from this date, HMRC may start issuing APNs to taxpayers who have secured a tax advantage via NICs through arrangements which are notifiable under the disclosure of tax avoidance schemes regime or for which HMRC determines there to be a relevant judicial ruling that may deny the tax treatment adopted. Where a taxpayer receives an APN, they are obliged to pay the tax demanded even though their appeal may not have been determined.
The extension of APNs to NICs will be of particular relevance to those who have entered into any planning related to employment tax, including in particular, employee benefit trusts (EBTs) and employer financed retirement benefit schemes. We understand that HMRC has held off issuing APNs on such arrangements until the introduction of the APN extension to NICs.
The introduction of the extension of the APN regime follows shortly after the closure of the EBT settlement opportunity on 31 March 2015. In many cases, this has provided an opportunity to reach a settlement on historic EBT structures on favourable terms whilst providing certainty for the future. If individuals and companies have not yet explored the settlement parameters available under the settlement opportunity, there remains a short window of time to explore resolving all tax uncertainties before the APN extension takes effect.
Base erosion and profit shifting (BEPS): A review
A number of countries around the world have chosen not to wait for final outcomes from the OECD BEPS project before taking action and have implemented BEPS-driven legislation and regulation. At the same time, BEPS concerns have inspired changes in the administrative and enforcement practices of many countries' tax authorities.
A special edition of our publication, The latest on BEPS - 2014 in review, provides highlights of the OECD and country activity relating to the 15 BEPS Actions during 2014 and a look ahead to BEPS developments expected in 2015. An appendix provides links to further information on the activity highlighted in each country.
As part of the BEPS Action plan, the OECD is expected to issue final reports with revisions to the Transfer Pricing Guidelines by the end of 2015. At the same time, transfer pricing audit activity is expected to increase, particularly with respect to substance and the alignment of value drivers and profitability. Tax authorities may well begin to draw on some of the guidelines and proposals with respect to transfer pricing that were released by the OECD in 2014. Our global tax alert summarises the transfer pricing highlights of the past year along with changes coming in 2015 for 49 jurisdictions.
India announces Union Budget for 2015-2016
On 28 February 2015, the Finance Minister of India presented the Union Budget for 2015-16, which has proposed a phased reduction of the corporate tax rate from the current 30% to 25% over the next four years. Budget announcements included clarity on most issues regarding the taxation of indirect transfers of Indian assets and the deferral of implementation of general anti-avoidance rules (GAARs) by two years. It is intended that the GAARs should come into effect from 1 April 2017 as part of a comprehensive regime to deal with aggressive avoidance, base erosion and profit shifting.
Other proposals include abolishing the wealth tax with the revenue shortfall being made up by an additional surcharge of 2% on individuals and companies with income over INR 10mn. Among international tax changes, a foreign company will be treated as a resident of India if its place of effective management is in India at any point during the year from 2015-16 onwards. Also, interest paid by a branch of a foreign bank in India to its head office will be treated as income subject to Indian tax and withholding tax. Withholding tax under domestic law on royalties and fees for technical services is reduced from 25% to 10%. Furthermore, new rules will be introduced to prevent an Indian fund manager from causing an offshore fund to be taxable in India.
Finance Bill 2015, which was introduced as part of the Budget, contains a number of other tax proposals to amend the Indian Tax Laws. For more details and analysis of the Union Budget please see our publication Budget Connect+ 2015.
European Court referral on VAT liability of credit and debit card handling fees
The First-tier Tribunal has referred the case of Bookit Ltd to the Court of Justice of the European Union (CJEU). This case concerns the VAT treatment of credit and debit card handling fees charged to customers making advance bookings for cinema tickets, specifically whether they qualify for VAT exemption under EU law.
In 2006, the same taxpayer successfully argued in the Court of Appeal that its card handling fees then being charged were exempt from VAT. In other cases involving very similar issues (such cases including Scottish Exhibition Centre Ltd, National Exhibition Centre Ltd and Way Ahead Group Ltd), the Tribunal has, until now, followed that decision.
However, in the present case, HMRC now maintains that subsequent case law of the CJEU gave rise to a real doubt as to the correctness of the original decision. As the Tribunal had reservations as to the scope of the exemption under EU law for ‘transactions concerning payments’, it decided that a reference should be made to the CJEU on this issue. The Upper Tribunal has since indicated that a similar reference will be made to the CJEU in the case of National Exhibition Centre Ltd.
Any taxpayers who charge a fee for handling payments by credit or debit card will be interested in the outcome of this litigation.
Other UK developments
New rules announced on sale and leaseback in the UK
The Government has announced new anti-avoidance rules that came into effect on 26 February 2015 and will be included in a Finance Bill in due course. The rules deal with situations where a capital asset is acquired without the acquirer incurring qualifying capital or revenue expenditure. An example would be where another connected party pays for the asset on the acquirer's behalf. Where the asset is subsequently transferred to another party, the new rules prevent the transferee from claiming capital allowances on the asset.
The new rules have been brought forward to deal with a particular avoidance scheme of which HMRC has become aware. Capital allowances on gifts of assets are specifically excluded from the new rules which are likely to have little effect on most businesses.
Upper Tribunal (UT) decides against taxpayer on loan relationship planning
The UT has dismissed the appeals in Versteegh, agreeing with the First-tier Tribunal (FTT). The scheme involved three companies in the same group. A lending company advanced money to a borrower company but interest on the loan was not paid to the lender. Instead, the borrower issued shares with a value equal to the interest payable to a third company.
The UT decided that the value of the shares should be taxed as what would now be miscellaneous income in the hands of the share recipient, rather than as interest in the hands of the lender. The FTT had decided that the interest was deductible by the borrower as it was recognised in the accounts and this point was not appealed by HMRC.
In reaching its decision, the UT considered whether the loan and credit transaction rules should apply to tax the interest on the loan in the hands of the lender rather than the recipient of the shares. The FTT had decided this provision did not apply. The UT disagreed. In principle, it thought the loan and credit transaction rules did apply but the loan relationship priority rule prevented them from giving rise to any tax effects in the hands of the lender.
A second issue was whether the value of the shares could be income in the hands of the share recipient even though it had no legal right to the shares. The UT decided that, for the shares to be income, it was enough that the borrower had an obligation to issue them under its agreement with the lender.
Office of Tax Simplification (OTS) publishes report on employment status
The OTS has published its report on employment status, which looks into simplifying the sometimes difficult issue of how to determine whether a worker is employed or self-employed for tax purposes.
The report contains a number of recommendations. Specific improvements recommended by the OTS include:
• Better employment status guidance, in one place with more real-life examples
• Help for individuals and small businesses on what action a business should take, and the documentation it should have, when engaging a self-employed individual, to preclude or reduce the burden of HMRC enquiries
• Setting up an HMRC employment status helpline and allocating more resources to this area
For the longer term, OTS suggestions included considering a ‘safe harbour’ approach where an employer, which was open about its arrangements, relied on HMRC advice and a ‘de minimis’ period of time or level of payment before employment status needs to be considered. It also proposed exploring the feasibility of a statutory employment test and a withholding tax for payments to those whose tax status is unclear.
Labour Party plans to reduce tax relief for pension contributions
In a speech on 27 February 2015, the Leader of the Labour Party, Ed Miliband, announced that a Labour Government would cut university tuition fees from £9,000 to £6,000 per year from September 2016. This policy is to be funded by a number of changes to tax relief on pensions:
• The rate of pensions tax relief for those with annual incomes of over £150,000 would be reduced from 45% to 20%
• The annual allowance would be reduced from £40,000 to £30,000
• The lifetime allowance would be cut from £1.25m to £1m
Taxpayers may wish to consider how these proposals might affect the timing of pension contributions and their mix of provisions for retirement.
New rates and bands of air passenger duty (APD) effective from 1 April 2015
From 1 April 2015, new rates and bands of APD apply to flights originating in Northern Ireland and the rest of the UK. The number of APD destination bands will be reduced from four to two by merging the former bands B, C and D. This will result in a simpler two-tier system depending on the class of travel and whether the distance flown is lower than or exceeds 2,000 miles from London. From the same date, the higher rate of APD (which applies to certain luxury aircraft weighing above 20 tonnes and with fewer than 19 seats) will be set at six times the reduced rate (applicable to the lowest class of travel) and three times the standard rate (for scheduled premium class travel).
In further related changes, from 1 May 2015, children under 12 will be exempt from the reduced rate of APD. From 1 March 2016, this exemption will be extended to children under 16.
Regulations on merging venture capital trusts enacted
The Venture Capital Trust (Winding up and Mergers) (Tax) (Amendment) Regulations 2015 have been enacted to deal with situations where there is a return of capital in respect of new shares which correspond to old shares in the merging entities. Previously, this action could lead to a venture capital trust losing its approved status.
UK and Senegal agree double tax treaty
The UK and Senegal signed a double tax treaty on 26 February. The treaty will come into force once it has been ratified in both countries and diplomatic notes exchanged.
Singapore issues its budget for 2015
The Singapore budget released on 23 February includes a number of new and enhanced incentives for business to expand. For example, the mergers and acquisitions relief has been increased from 5% to 20% of the value of the target acquired, but the cap on the value of qualifying acquisitions has been reduced from S$100mn to S$20mn. Further tax concessions for real estate investment, insurance and the maritime sector have been enhanced or extended. However, the approved headquarters incentive is ending on 1 October 2015.
For more details, please see our global tax alert.
South African Minister of Finance delivers his budget speech
In his budget speech of 25 February, Nhlanhla Nene, South Africa's Minister of Finance, proposed measures to deal with the “erosion of the tax base, profit shifting and illicit money flows”. The proposals, which are not yet published in detail, include improvements to transfer pricing documentation and reporting. Having transfer pricing documentation in place is currently advisable rather than compulsory, but this may change.
The controlled foreign company rules are to be tightened with a more stringent control test and the inclusion of sales of goods diverted from a connected South African resident. South Africa is also planning to introduce withholding tax on interest from 1 March 2015 and on service fees from 1 January 2016. Some further specifics on these developments have been announced.
Please see our global tax alert for more details.
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.
Germany: The EU Advocate General has opined that German exit taxation payable in instalments when assets are transferred to a foreign permanent establishment is legal under EU law. The final decision in this case may provide guidance with respect to the length of payment periods in general with regard to exit taxation.
Venezuela: The Government has enacted tax reforms that expand the scope of taxable employment income and allow the authorities a longer period to assess and collect tax.
Nigeria: New regulations have reduced the withholding tax to be deducted at source for all aspects of building, construction, and related activities from the previous rate of 5% to 2.5%.
Ecuador: Tax reforms have been enacted which include limits on the deductibility of certain expenses and the taxation of share transfers.
Czech Republic: Individuals are now required to submit a notification of tax exempt income exceeding CZK 5mn received after 1 January 2015 to the tax authorities.
Brazil: The Government has increased the general social contributions on gross revenues (effectively import duty) from 9.25% to 11.75% with special rates for certain categories of goods.
Indirect tax in 2015: A review of global indirect tax developments and issues
Our latest global report, Indirect tax in 2015, is our sixth annual round-up of developments in VAT, goods and services tax (GST), excise duties, customs duties and environmental taxes around the world. We present changes, covering more than 100 jurisdictions, which have either been introduced in recent months or are expected in 2015 and beyond. Four summary maps are also included to provide a ‘snapshot’ of where the changes are taking place.
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.
EY podcast on what to expect in the Budget
+ 44 20 7951 0150
First-tier Tribunal rules on availability of losses on an intra-group transfer of trade
+ 44 20 7951 7076
Accelerated payment notice regime extended to national insurance
+ 44 20 7951 5912
Base erosion and profit shifting: A review
+ 44 20 7951 2486
India announces Union Budget for 2015-2016
+ 44 20 7951 6007
European Court referral on VAT liability of credit and debit card handling fees
+ 44 20 7951 8565
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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Economics for business
Tax Insights examines the journey ahead
Watch our Finance Act webcasts for insight and interpretation around the impact of this year's UK Finance Act from some of our leading tax professionals.
Tax alerts: knowledge when you need it
Building a tax manifesto for manufacturing
The global re-shoring trend is creating new opportunities for the UK, but our report shows it has limited time to set itself up for future high quality manufacturing (658K, August 2014).