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A weekly update on tax matters to 27 September 2016

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.

On 22 September 2016 the OECD held the latest in its series of update webcasts. The webcast covered the following areas:

• Multilateral instrument progress update: The working group has reached agreement in principle on the English text of the instrument, but fine tuning is still required. Translation into French is due to be completed by November. The instrument contains provisions to implement each BEPS tax treaty related measure. It will contain flexibility, with opt in provisions (eg. on arbitration and alternatives) and opt outs (except for minimum standards agreed for certain action points). The instrument will include notifications intended to ensure clarity with existing treaty provisions and will be accompanied by explanatory statements. The final meeting of the group is expected in late November to formally adopt the English and French texts and approve the explanatory statement text. It is expected that there will be a signing ceremony scheduled for the first half of 2017.

• G20 leaders' summit in Hangzhou: The G20 leaders identified the link between world growth, tax and the need to address BEPS. The move to automatic exchange of information and the implementation of anti-BEPS measures and the inclusive framework to achieve this was welcomed. A tax policy symposium covered the G20 work relating to tax policy, including tax certainty, which was agreed as important to encourage trade and investment. Work will aim to increase tax certainty and a business questionnaire will be launched in early October, where stakeholders will be able to feed in views on the areas that create certainty or uncertainty.

• State Aid: The OECD is concerned that State Aid decisions only deal with the past and that for the future there is a need for a common standard on transfer pricing. The OECD is in talks with the European Commission to ensure that it does not impose its own standard on transfer pricing, but instead implements the OECD guidelines.

• Automatic exchange of information: The OECD has concluded a contract with a service provider for a common transmission system for automatic exchange of information with effect from 1 July 2017.

On 26 September, John McDonnell, the Shadow Chancellor, set out his plans for Labour's fiscal policy. While the subsequent headlines have focused largely on the suggestion of a national living wage of £10 an hour if Labour was elected in 2020, Mr McDonnell did outline proposals in a number of other key areas:

• Brexit: Mr McDonnell promised that Labour “will seek to preserve access to the single market for goods and services”. He specifically referred to Labour's support for access to European markets for financial services. He did recognise that access to the single market requires freedom of movement of labour but said that Labour would address the concerns that people have raised in the undercutting of wages and conditions, and the pressure on local public services. He said that Labour would not support the transatlantic trade and investment partnership (between the US and Europe) or any other trade deal that “promotes deregulation and privatisation, here or across Europe”.

• Tax: Labour will be developing the policies that will “shift the tax burden more fairly, away from those who earn wages and salaries and onto those who hold wealth”.

• Tax avoidance: HMRC will be given the staffing, the resources and the legal powers to “close down the tax avoidance industry that has grown up in this country”. A new Tax Enforcement Unit will be created at HMRC, doubling the number of staff investigating wealthy tax avoiders. Mr McDonnell promised that “tax-dodging companies” would be banned from winning public sector contracts and that all British Crown Dependencies and Overseas Territories would introduce a full, public register of company owners and beneficiaries. It is not yet clear how the first of these pledges would differ from the procurement provisions already in place nor how a Labour government would ensure that the second was achieved.

• Corporate regulation: Mr McDonnell promised to introduce legislation to ban companies taking on excessive debt to pay out dividends to shareholders. He also promised that the Takeover Code would be amended to “make sure every takeover proposal has a clear plan in place to pay workers and pensioners”.

Our next Tax Focus web seminar will be at 10:00 am on Monday, 17 October 2016 when we will take stock of where we are currently, including a look at key measures recently enacted, the many consultations recently issued and a look forward to what we expect to see in the Autumn Statement.

The web seminar will cover:

• A reminder of the main measures in this year's Finance Act (which received Royal Assent on 15 September) and what action you might like to take as a result;

• Consideration of likely Government responses to recently closed consultations in areas such as loss relief, interest deductibility and Substantial Shareholding Exemption reform;

• A brief summary of the more significant new consultations announced over the summer (there have been nearly 40 since the beginning of August);

• Our predictions of the measures that might be in this year's Autumn Statement and Finance Bill 2017;

• he state of play of various BEPS and EU initiatives with a look forward to next steps.

Register now to hear Claire Hooper and Andrew Drysch discuss these issues.

Northern Ireland corporation tax regime – draft guidance published

On 26 September 2016 HMRC issued draft guidance on the operation of the Northern Ireland corporation tax regime. HMRC has invited comments on the draft guidance by 1 January 2017.

The Corporation Tax (Northern Ireland) Act 2015 allows for devolution of power to the Northern Ireland Assembly to set a Northern Ireland rate of corporation tax to apply to certain trading income. The Northern Ireland Executive has committed to setting a rate of 12.5% from 1 April 2018, subject to it demonstrating that its finances are on a sustainable footing.

Global Trade Brexit event in London

On Tuesday, 18 October 2016, in partnership with the London Chamber of Commerce and Industry (LCCI), our Global Trade team will be holding a Brexit event at our More London offices.

After the UK voted to leave the EU, the spotlight has fallen on the country's trade position and the indirect tax consequences. When Article 50 is finally triggered, the UK's trading relationship with the EU and the rest of the world is likely to change. This event will cover the potential UK policy changes for Brexit, the expected impact for business and trade and how and when to plan for the key challenges and opportunities that may arise.

Please click here for more information or to register for the event.

First-tier Tribunal stays SDLT anti-avoidance case

In the First-tier Tribunal case of Milltown Ltd & Anor, the Tribunal has agreed to stay the taxpayer's appeal pending HMRC's application to the Supreme Court for leave to appeal in the separate Project Blue case. That case concerns the liability to stamp duty land tax (SDLT) arising on the sale of the Chelsea Barracks by the Ministry of Defence to the taxpayer. The acquisition was financed by a Qatari bank and involved a sale and subsequent leaseback of the property, with the taxpayer claiming a combination of sub-sale relief and alternative finance relief.

In Project Blue, the Court of Appeal found that, applying the relevant sub-sale relief provisions, the taxpayer did not acquire a chargeable interest in land and could not, therefore, be the ‘vendor’ for the purposes of alternative finance relief. The effect of this was that the alternative finance relief was not available to the Qatari bank, such that SDLT was chargeable on the Qatari bank's acquisition of the property based on the full purchase price given by the bank. The taxpayer had no liability to SDLT as it did not acquire any chargeable interest in land.

Although the Milltown case is not designated as a lead case, it is understood that there are around 700 other taxpayers in a similar position. In the event permission to appeal is not granted to HMRC by the Supreme Court in the Project Blue case, the Milltown case will then proceed before the First-tier Tribunal.

International developments

Dutch Government publishes 2017 budget proposals

On 20 September 2016, the Dutch Ministry of Finance issued its tax budget proposals for fiscal year 2017 and beyond.

The proposals contain several anticipated tax law changes to be effective as of 1 January 2017, including changes to further align the innovation box regime with the recommendations of the OECD, as well as certain changes in the provisions regarding the deductibility of interest for corporate income tax purposes (anti-base erosion rules and leveraged buy-out rules) to counter specific situations that are considered to be abusive or to counter unintended consequences of the current legislation.

The proposals also include a structural extension of the first corporate income tax bracket of 20% up to the first €250,000 of taxable income as from 2018, with gradual further extensions up to the first €350,000 of taxable income, as from 2021.

In addition, a separate letter was published on 20 September by the Dutch Secretary of Finance in which an announcement was made regarding the proposed alignment of the Dutch dividend withholding tax treatment of profit distributions made by Dutch Cooperatives and limited liability companies (Dutch BVs/NVs). The announcement states that the domestic dividend withholding tax exemption will be expanded to include dividends distributed by a Dutch company to any shareholders with a qualifying interest that are residents of treaty countries, irrespective of the treaty rate. Furthermore, it was announced that cooperatives that act as holding companies should no longer fall within a separate general exemption for Co-ops, but will be treated the same as limited liability companies (including the expanded domestic exemption discussed above). The proposal will be subject to an internet consultation before it is submitted to Parliament, with the aim of enacting the new legislation ultimately by 1 January 2018. The announcement only consists of a legal framework and no draft legislation has actually been published yet.

Upcoming Global webcast on CBCR

At 3:00 pm on Thursday, 29 September 2016, we will be holding a webcast entitled ‘Adjust your aperture: Preparing for CbC reporting’.

With more than 30 countries having already finalised or drafted legislation in line with the recommendations made in Action 13 of the OECD's BEPS action plan, most multinationals will be required to submit full country reports with this year's data in the next 15 months.

Country-by-country reporting will provide tax authorities with a breakdown of where a multinational realises profits and revenues, the amount of taxes paid on those profits and certain other indicators, the interpretation of which may potentially result in increased controversy.

Join our global panel as we discuss the latest global developments, notification and filing requirements, issues in interpreting terminology and practical issues encountered.

To register for the webcast, please click here.

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 German Government has proposed legislation to allow companies with losses to retain and use these following changes in ownership, as well as publishing recommendations on the draft legislation to implement country-by-country reporting.

Canada: The Canadian Department of Finance has released a new package of draft legislative proposals relating to technical amendments to the Income Tax Act and associated regulations.

Switzerland: The Swiss Parliament has adopted changes to Swiss dividend notification procedure in favour of taxpayers.

Other publications

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 our employment, reward and mobility newsletter, as well as 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.

OECD update webcast 22 September 2016

Email Claire Hooper

+ 44 20 7951 2486

Shadow Chancellor's speech at the Labour party conference

Email Mike Gibson

+ 44 20 795 10568

Tax Focus web seminar ‘Where are we now and what's next’ on Monday, 17 October 2016

Email Lindy Sing

+ 44 23 8038 2255

For other queries or comments please email eytaxnews@uk.ey.com.

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