The latest thought leadership, news, and alerts relating to the Chancellor's Autumn Statement and the Draft Finance Bill will be posted here over the next few weeks.
Autumn Statement 2014
Survey: managing global compensation
Managing operational tax risk: survey highlights
Building a tax manifesto for manufacturing
2014 tax risk and controversy survey highlights
OECD provides update on the BEPS Action Plan
Tax Policy and Controversy Briefing goes online
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 25 November 2014
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.
Autumn Statement/draft Finance Bill clauses
The Chancellor of the Exchequer, George Osborne, is due to deliver his Autumn Statement at around 12:30 Wednesday, 3 December. A week later, on 10 December, draft clauses for what is likely to be the first of the 2015 finance bills should be issued for consultation, possibly along with clauses that may be left until after the election. We are also expecting responses to a number of consultations and several new consultations, some of which have been trailed in advance. Here are some of the highlights of what we expect to be covered in the Autumn Statement or draft Finance Bill clauses.
• We expect an announcement on the introduction of a targeted anti-avoidance rule for certain companies holding intellectual property offshore. We understand the rule would target arrangements under which intellectual property is held by multinationals outside the UK in a low/no tax jurisdiction without the benefit of treaty protection, particularly where there is significant UK activity but little UK tax base and there is a separation of intellectual property assets from substance or a lack of value chain transparency.
• A decision is due on whether corporation tax will be devolved to Northern Ireland (the command paper on further devolution of taxes to Scotland is due by end November).
• A consultation will be published on the implementation of rules to prevent hybrid mismatches in line with BEPS Action 2. The UK already has anti-avoidance rules that deal with tax arbitrage and dual resident investment companies. However, there are some key differences between these and the proposed new OECD rules.
• Changes are anticipated to the loan relationships and derivative contracts regime following on from the working groups which have met over the last year. We are expecting a new regime anti-avoidance rule, changes to the late paid interest rules and measures that align tax more closely to the accounts.
• With country-by-country reporting expected to come in from 2016, we expect an announcement as to how this might be implemented in UK law.
• A Government response is likely to be made to the recent Office of Tax Simplification (OTS) report on tax competitiveness. We may also learn if the mandate of the OTS will be extended past 2015.
• More details will be provided on the proposed introduction of a capital gains tax for non-residents owning UK residential property. This will also include the withdrawal of the ability for all individuals with more than one residential property to make an election designating which property should be their principal private residence.
In addition, there are likely to be amendments to incentives and tax reliefs to broaden the economic recovery and target specific anomalies. Some of these have been consulted on. During the summer, HMRC issued a call for evidence on a reform of oil and gas taxation. We might see a consultation on various ways forward towards a reformed regime. There was also consultation on changes to the tax rules for venture capital trusts, seed enterprise investment schemes, enterprise investment schemes and the construction industry scheme. We may see the introduction of the concept of a marketable security into the employment-related securities legislation and the proposed restriction of the personal allowance for non-UK residents.
We will bring you further details through alerts to be issued in the evening of 3 and 10 December as well as our Tax Focus web seminar at 15:00 on 11 December.
OECD issues base erosion and profit shifting (BEPS) discussion draft on follow up work on treaty abuse
The OECD has released a public discussion draft on Follow Up Work on BEPS Action 6: Preventing Treaty Abuse. This work was mandated by the OECD report on Action 6 (prevent the granting of treaty benefits in inappropriate circumstances) of the BEPS Action Plan, published on 16 September 2014.
Building on the September report, the discussion draft highlights various issues, including those relating to the limitation on benefits (LOB) rule and those concerning the proposed principal purpose test (PPT). The draft sets out issues in a number of other areas, including a new form of treaty tie-breaker clause and the triangulation rules necessary for permanent establishments in a third state. The draft specifically asks for comments on a number of the issues and appears to be an agenda for future work on Action 6. It does not look to offer any conclusions at this stage.
Interested parties are invited to submit written comments by 9 January 2015. The OECD intends to hold a further public consultation on the discussion draft on 22 January 2015. The consultation process provides businesses with the opportunity to comment on areas of concern and to minimise continuing uncertainty and the risks of double taxation. Please speak to your usual EY contact to discuss any concerns you have.
Developments in HMRC's tax collection powers
HMRC has published an Issue Briefing and a summary of responses to its May 2014 consultation on direct recovery of debts. This consultation document sets out the process to implement the Chancellor's announcement, at Budget 2014, that HMRC would be given the power to recover tax and tax credit debts directly from the bank and building society accounts of debtors.
The proposals prompted significant debate and concerns were raised by many of the respondents to the consultation and also by the Treasury Select Committee. In response to the concerns raised, HMRC has stated that the Government is introducing new safeguards, including a guaranteed face-to-face visit for every debtor who is subject to the measures and additional support for vulnerable customers.
In response to concerns raised about debtors' privacy and the use of their bank account data, the Government has decided not to implement the requirement for banks to provide 12 months of data on a debtor's account history. While the Government has committed to work with the banking sector to minimise the administrative impact, banks will need to focus on how they might build the systems they need to implement the proposals.
The Government intends to legislate in a Finance Bill in 2015 but after the next general election to allow for an extended period of scrutiny.
Separately, HMRC has commenced issuing accelerated payment notices (APNs) under its new powers to require up-front payment of disputed tax in relation to arrangements impacted by disclosure of tax avoidance scheme (DOTAS) rules, follower notices and the general anti-abuse rule.
These notices, which cannot be appealed, require payment within 90 days and are being issued on a phased basis over 20 months. To date, APNs have been issued in relation to DOTAS arrangements, following a short pre-warning period given by HMRC. The Government has said that by January 2015, HMRC will be issuing 2,500 APNs per month.
Our tax alert looks at how taxpayers who think they may be at risk of receiving a notice might develop an appropriate strategy to adopt in advance of its receipt.
VAT treatment of pension fund management costs
We understand that HMRC is close to finalising its position on the UK implementation of the Court of Justice of the European Union judgments in the cases of PPG Holdings BV and ATP PensionService A/S. These cases concern the VAT treatment of pension fund management costs, specifically whether such supplies qualify for exemption from VAT and, if not, whether any VAT incurred is recoverable as input tax. Further guidance is expected to be issued very shortly.
Other UK developments
Survey on reform of travel and subsistence taxation
Following the report by the Office of Tax Simplification in January 2014 on the tax treatment of employee benefits and expenses, the Government announced in Budget 2014 that it intended to review the rules underlying the taxation of travel and subsistence expenses. The review, which is underway, includes a two stage consultation process. This will enable the Government to improve its understanding of the commercial realities of travel and subsistence payments and will lead to a new set of principles on which to base an updated tax regime.
We are actively engaged in the consultation process and are keen to understand the impact of this review as well as of any proposed changes on business. To assist with this, we would be very grateful if you could complete our travel and subsistence survey which will only take a few minutes of your time.
Developments in respect of UK challenge to EU cap on bankers' variable pay
On 20 November 2014, the Advocate General (AG) considered the UK's challenge to the EU cap on bankers' variable pay. In his opinion, the AG suggests that all the UK's pleas should be rejected and that the Court of Justice of the European Union dismiss the action. Following the release of the AG's opinion, both the UK Treasury and the Chancellor made statements confirming that the UK legal challenge would be withdrawn.
HM Treasury noted that it will “look at other ways of building a system of pay in global banking that encourages rather than undermines responsibility. For example, it may be necessary to develop standards that ensure non-bonus or fixed pay is put at risk, maximise claw back, or pay senior staff in performance-related bonds.” The Chancellor has also written to the Governor of the Bank of England, discussing the need for further work at the Financial Stability Board on bank remuneration in the context of rising fixed pay within the EU.
The Small Business, Enterprise and Employment Bill has now passed into the House of Lords with its second reading due on 2 December. The measures in Part 7 of the Bill addressing corporate transparency include a requirement for every company to keep a register of people with significant control over the company; the abolition of bearer shares and directors which are corporates; and the imposition of directors' duties on shadow directors. The Bill has been amended to clarify the situations where individuals or a legal entity will not be subject to registration.
Regulations issued on accreditation of companies as social impact contractors
Finance Act 2014 introduced social investment relief, which allows individuals to receive tax relief for investing in social enterprises, including companies which are accredited as social impact contractors.
Regulations governing the accreditation of these social impact contractors have now been passed into law and will be effective from 10 December. The regulations define the conditions which must be met for a social impact contractor company to receive accreditation by a Minister of the Crown, in relation to a relevant contract. Contracts must be with a contracting authority (broadly, a public body) and have a social or environmental purpose. The regulations include a list of activities which will meet these criteria.
The regulations also make provision about procedural matters in relation to the accreditation process.
Increase in enforcement activities for pensions' automatic enrolment
The Pensions Regulator has published its latest figures on automatic enrolment compliance and enforcement. The results show an increase in the number of times it has exercised its enforcement powers against employers. These include the first use of fines relating to automatic enrolment, with three fixed penalty notices being issued. The Pension Regulator has carried out six investigations so far and we expect that these will continue to increase as more and more employers become subject to the challenges of automatic enrolment obligations.
For further details, please see our tax alert.
Inheritance tax and charitable trusts
In Routier and Anor, the High Court considered whether a disposition in a will was exempt from inheritance tax because it comprised property which was given to a charity under the Inheritance Tax Act 1986.
The disposition in the will was made to a trust, the objects of which were exclusively charitable purposes within the meaning in UK law. However, the trust was not established in the UK and was subject to Jersey law rather than UK law.
The Court found that the reasoning of the Court of Appeal in the Camille and Henry Dreyfus Foundation case applies to the relevant wording of the Inheritance Tax Act. In the Court's view, the expression “held on trust for charitable purposes” requires not only that the charitable purposes be charitable purposes within UK law but that the relevant trust be subject to the jurisdiction of the UK courts as well.
Supreme Court denies leave to appeal on VAT on arrears of gym fees
The Supreme Court has refused the application by Esporta Ltd for permission to appeal the Court of Appeal's judgment in favour of HMRC. This case concerns whether health and fitness club membership fees recovered from defaulting members after access to the club's facilities had been denied due to non-payment were compensation or consideration for a taxable supply of services. The First-tier Tribunal allowed the taxpayer's appeal, holding that the late paid membership fees constituted damages or compensation for breach of contract, and thus fell outside the scope of VAT. However, the Court of Appeal held that the monthly payments were consideration for a taxable supply of services by the taxpayer, namely the grant of the right to access the club's facilities. As the Supreme Court has refused the taxpayer leave to appeal, the Court of Appeal's decision is now final.
First-tier Tribunal finds that fee paid for an ice cream pitch is a taxable licence
In the case of Fareham Borough Council, the First-tier Tribunal considered whether the grant of a mobile catering concession constituted a taxable supply of the right to trade or an exempt licence to occupy land for VAT purposes.
The taxpayer, a local authority, permitted a concessionaire to park his ice cream van and trade from a specifically marked bay in a car park. The taxpayer contended that the charge made to the concessionaire was for the supply of a licence to occupy land, which was exempt from VAT. The taxpayer considered that its supply in the present case was not dissimilar to the grant of a pitch at a car boot sale, which HMRC accepts as meeting the criteria of a licence to occupy land. HMRC contended that the taxpayer granted the concessionaire a standard-rated licence to trade, and not an interest in land. In dismissing the taxpayer's appeal, the Tribunal held that the real subject matter of the catering concession was the right to sell ice cream, compared to which the use and enjoyment of the land was of secondary importance.
This case demonstrates the complexities associated with determining whether a particular land related supply constitutes an exempt licence to occupy land.
Update on developments in US international tax
Negotiations are continuing in Congress to extend more than 50 tax provisions that expired at the end of 2013 or are due to expire at the end of 2014. Options considered range from making some of the extender provisions permanent to only extending the 2013 measures to 2014. This latter option, favoured by some Republicans, is seen as the least controversial ‘lowest common denominator’ approach.
The IRS has also issued new regulations on documents to be filed on the transfer of stock or securities to outside the US. The regulations are generally favourable to taxpayers but a related rule that allowed backing documents to be submitted later on has been revoked.
Finally, the IRS has issued a ruling concerning back-to-back loans to a controlled foreign company which may be relevant to US taxpayers with offshore cash pooling or funding services.
Our international tax alert has more details.
European Commission reports comparing taxes on wealth and corporate tax rates
EY has produced a report for the European Commission comparing taxes on wealth, including inheritance tax, capital transfer duties and real estate duties, across the EU. The report found that wealth taxes, broadly construed, range from almost 3.5% of GDP in France through 2.25% in the UK to less than 0.25% in several Member States.
The Commission has also published a comparative report by the Centre for European Economic Research on corporate tax rates in the EU and some other jurisdictions. The report looks behind headline rates to establish the level of taxation on various classes of assets. It finds the highest ‘mean corporate tax rate’ is France with 39.4% (compared to its headline rate of 38.9%), followed by Japan and the US. High tax rates on certain assets are also noted, such as the UK taxing industrial buildings at 31.6% (compared to its headline rate of 21%) and Ireland taxing financial assets at 24.4% (compared to its headline rate of 12.5%). Thus the report not only highlights differences in tax rates between the countries considered, but also across different sectors within each country.
Other international tax alerts
Please see links to a selection of our international tax alerts in respect of the following developments. Additional articles are available in our Global tax alert library.
Ghana: The 2015 Budget has introduced a special petroleum tax of 17.5%, an extension of the national fiscal stabilization levy, amendments to VAT rules and various other changes to the tax rules.
Cameroon: The Government has proposed a reduction in the current corporate income tax rate from 35% to 30% in the 2015 Budget as well as various other proposals.
Costa Rica: The tax thresholds for corporate income tax and individuals for the 2015 tax year have been published.
Peru: A new law establishes a special regime for depreciation of buildings and revises VAT rules in order to promote economic growth in the country.
Qatar: The Ministry of Finance has published details of the new tax administration system which requires taxpayers and advisors to register from 28 September 2014.
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.
Autumn Statement/draft Finance Bill clauses
+ 44 20 7951 2486
OECD issues BEPS discussion draft on follow up work on treaty abuse
+ 44 20 7951 2486
Developments in HMRC's tax collection powers
+ 44 20 7951 5912
VAT treatment of pension fund management costs
+ 44 20 7951 2249
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.
Connect with us
Stay connected with us through social media, email alerts or webcasts. Or download our EY Insights app for mobile devices.
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.
Pascal Saint-Amans video: what’s next for BEPS?
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).