EY can help you understand the implications of the EU referendum decision on your tax position.
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 business tax blueprint for the UK post-Brexit
We asked over 175 tax and finance professionals headquartered in the UK and overseas for their views on how the tax system affects the UK’s attractiveness post-Brexit. Read more 1.4Mb, September 2016
Improving large business tax compliance:
Building the balance: Cooperative compliance in practice
The administration of our tax regime is a key factor in the attractiveness of the UK as a place to live and do business. Our report outlines the proposed agreement and offers a view on the most effective way to take it forward. Read more 2.1Mb, March 2016
Engaging with HMRC
255K, July 2015
New measures applicable from April or July 2016
494K, December 2015
Corporate Governance Code meets Tax Code of Practice
203K, July 2015
- Midweek Tax News
A weekly update on tax matters to 20 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.
Finance Act 2016 receives Royal Assent
The Finance Act received Royal Assent on 15 September 2016 and has now come into force. In particular, the rules on large businesses publishing their tax strategies are now in force, applying to financial years beginning on or after this date.
Following Royal Assent of Finance Act 2016, Jane Ellison, Financial Secretary to the Treasury, has announced that draft clauses to be included in Finance Bill 2017 will be published on Monday, 5 December 2016. This follows the Autumn Statement, which is scheduled to take place on Wednesday, 23 November. The consultation on the draft legislation will run until Monday, 30 January 2017.
In addition, whilst speaking at the Institute of Fiscal Studies conference on 9 September, the Financial Secretary reinforced the Government's desire to create a tax system that supports UK businesses whilst at the same time ensuring that businesses, large and small, support the tax system. In doing so, she highlighted that the new team at the Treasury is keen to focus on tackling aggressive tax avoidance both at a domestic level and at a global level, supporting the OECD's BEPS project.
Building a business tax blueprint for the UK post-Brexit
Last Thursday we launched our latest report, Building a business tax blueprint for the UK post-Brexit, which many of you may have already seen.
With an opportunity to reassess the tax regime in the context of keeping the UK open for business following the vote to leave the European Union on 23 June 2016, we surveyed tax and finance professionals from organisations headquartered both in the UK and overseas to understand their perspective.
Our report sets out a blueprint of proposals which the Government should consider if the UK is to move beyond being merely ‘open’. The conclusions of the survey are clear:
• Cutting other tax burdens could have a more significant impact than a corporation tax rate change in isolation.
• For many businesses, tackling the tax base represents a more effective long-term strategy.
• Businesses need to be able to respond quickly. Investment in the administration of the tax system is needed to provide the necessary certainty.
Setting out, communicating and actually implementing tax law in line with a clear plan is critical to creating an attractive business environment.
A copy of the report is available here.
European Court releases two judgments on the right to deduct VAT shown on incomplete invoices
The Court of Justice of the European Union (CJEU) has released two judgments in the cases of Barlis 06 – Investimentos Imobiliários e Turísticos (Barlis) and Senatex GmbH (Senatex). Both cases are concerned with the right to deduct VAT where invoices contain insufficient details.
Barlis received services from a law firm which issued its invoices with a generic description of ‘legal services rendered between specific dates’ or for ‘legal services to a present date’. Barlis sought to recover the VAT on the invoices but the Portuguese tax authorities rejected the claim on the grounds that the invoices did not meet the requirements provided for in the Portuguese VAT Code. The CJEU held that i) invoices providing only a broad description of the services received with insufficient detail to determine the nature or VAT rate applicable to the supply, and ii) the lack of a start date for continuous supplies, do not in principle comply with formal EU invoicing requirements. However, in line with the EU principle of neutrality, the CJEU held that VAT may still be deducted if the tax authorities have available all the information necessary to establish that the supplier has accounted for VAT correctly and that the customer is entitled to deduct that VAT. Referring the case back to the national court to decide, the CJEU suggested that the annexes to the invoices produced by Barlis during the inspection may well provide this level of detail.
In the German case of Senatex, the taxpayer deducted VAT against certain incomplete purchase invoices. Following a VAT inspection, these invoices were rectified. Notwithstanding those corrections, the German tax authorities disallowed Senatex's VAT deduction on the grounds that the initial invoices were not valid VAT invoices and the requirements for VAT deduction were not met until those invoices had been corrected. This meant that the invoices could not be adjusted retrospectively and the German tax authority charged interest in the intervening period. The CJEU held that the correction of an incomplete VAT invoice has retrospective effect, with the result that the right to deduct VAT may be exercised when the initial invoice was drawn up.
In light of the judgments, businesses may wish to review current invoicing processes to ensure that EU and national invoicing criteria are met. Affected businesses may also wish to consider challenging any historic assessments/charges as a result of input tax deduction against incomplete invoices.
Other UK developments
Draft regulations published relating to apprenticeship levy
On 19 September 2016, HMRC launched a technical consultation on draft regulations issued under the powers granted in Finance Act 2016, which contains the primary legislation relating to the apprenticeship levy (applicable from 6 April 2017). The consultation asks for comments on the draft regulations, which provide for the calculation, reporting and payment of the levy, as well as the recovery of overpaid levy. The draft regulations also specify how the levy allowance will operate on a cumulative monthly basis.
The technical consultation will be of interest to employers who are likely to have a liability to pay the apprenticeship levy (employers with annual pay bills greater than £3 million, subject to the rules on connection) and payroll agencies.
The technical consultation will close on 14 November 2016.
Launch of inquiry on corporate governance by the Business, Innovation and Skills Committee
The Business, Innovation and Skills (BIS) Committee launched an inquiry on corporate governance on Friday 16 September 2016. The inquiry is focusing on executive pay, directors' duties and the composition of boardrooms, including worker representation and gender balance in executive positions.
The BIS inquiry follows on from the corporate governance failings highlighted by the Committee's recent inquiries into BHS and Sports Direct, and in the wake of commitments from the Prime Minister to overhaul corporate governance.
Written evidence should be submitted online via the corporate governance inquiry page by Wednesday, 26 October 2016.
Consultation on the transposition of the Fourth Money Laundering Directive into UK law
On 15 September 2016 HM Treasury launched a consultation inviting views and evidence to inform the Government on the transposition of the Fourth Money Laundering Directive and the Fund Transfer Regulation into UK law.
The directive seeks to give effect to updated international anti-money laundering and counter-financing of terrorism (AML/CFT) standards set by the Financial Action Task Force. The directive is accompanied by the Fund Transfer Regulation, which updates rules on information accompanying transfers of funds and which will come into force from June 2017.
The Government is keen to ensure that the UK's AML/CFT regime effectively deters money laundering and terrorist financing activity, whilst being proportionate and managing burdens on businesses.
The directive requires the maintenance by Member States of a central register of the beneficial ownership of corporates and other legal entities incorporated within their territory. The UK already requires certain entities to maintain a register of people with significant control (PSC) and David Cameron announced at the Anti-Corruption Summit in May 2016 that the UK will also establish a public register of company beneficial ownership for foreign companies that already own or buy property in the UK, or who bid on central government contracts. Consideration must now be given on how to meet the requirement that PSC information on the central register remains current and covers all relevant entities, how this fits in with other information on the public register and whether any further changes are necessary.
Responses to the consultation are to be received by 10 November 2016.
Joint and several liability provisions for online market places
Following Royal Assent of the Finance Act, the joint and several liability provisions relating to online marketplaces have now come into force and HMRC has also formally issued its guidance regarding the provisions. Under these provisions, where an overseas trader who operates through an online marketplace is liable to be registered and account for UK VAT, and they fail to do so, HMRC now has powers in place to hold the online marketplace jointly and severally liable for any UK VAT due.
HMRC is required to set a date from which the joint and several liability condition applies in a formal liability notice. By this date, if the trader is not registered and accounting for UK VAT correctly (and HMRC is satisfied that this is the case) then the online marketplace needs to either remove them or be held jointly and severally liable for any VAT due. HMRC has stated that it will seek to adopt a collaborative approach to ensure UK VAT is accounted for correctly (known as the pre-notification period) however it reserves the right to issue a liability notice immediately.
Online marketplace operators will need to consider appropriate policies to deal with these notices if they receive them and may wish to undertake a review of their trading base to identify any overseas traders operating via their marketplace who may be affected.
Two new EU State Aid investigations launched
The European Commission has provided further insight into the taxation practices/policies that it considers can amount to State Aid, announcing two new investigations on 19 September. In the first, the Commission has announced an investigation into a progressive turnover-based tax on the retail sector in Poland and whether this provides a selective advantage on companies with low turnover, such that these companies either pay no retail tax or pay substantially lower average rates than companies with high turnover. This follows on from the Commission's conclusion in July 2016 that a Hungarian progressive turnover-based tax on the retail sector constituted State Aid.
The second investigation involves a review of Luxembourg's tax treatment of a French multinational group, where it has concerns that several tax rulings issued by Luxembourg may have selectively derogated from Luxembourg national law. In particular, the Commission notes that the rulings appear to treat the same financial transaction in an inconsistent way, both as debt and equity, resulting in tax benefits which are not available to companies subject to the same national law.
European Commission launches work to create first common EU list of non-cooperative tax jurisdictions
The European Commission has begun the process to create an EU list of non-cooperative jurisdictions by the end of 2017 by producing a scoreboard of indicators as a pre-assessment.
All non-EU countries and tax jurisdictions in the world were analysed to determine their risk of facilitating tax avoidance, based on a wide range of neutral and objective indicators, including economic data, financial activity, institutional and legal structures and basic tax good governance standards.
The scoreboard presents factual information on every country under three neutral indicators: economic ties to the EU, financial activity and stability factors. The jurisdictions that feature strongly in these three categories are then set against risk indicators, such as their level of transparency or potential use of preferential tax regimes.
The pre-assessment does not represent any judgment of third countries, nor is it a preliminary EU list. The intention is to help Member States to narrow down their focus when deciding which countries to screen in more detail from a tax good governance perspective, which is the next step in the EU listing process. The screening of the selected countries should begin next January, with a view to having a first EU list of non-cooperative tax jurisdictions before the end of 2017.
The common EU list is intended as a tool to deal with third countries that refuse to respect tax good governance principles, when all other attempts to engage with these countries have failed.
EY webcast on the implementation of Indian GST
On Tuesday, 27 September 2016 (7:00 pm British Summer Time), we will be holding a webcast on the implementation of GST in India.
The implementation of India's new GST regime, with effect from 1 April 2017, will require businesses operating in India, as well as overseas businesses liaising with their Indian counterparts, to overhaul their entire indirect tax processes. The magnitude and complexity of these changes, combined with the relatively short period for implementing them, will create challenges for businesses. To assist businesses with these changes, our panel will discuss the GST implementation and next steps in detail.
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.
New Zealand: The New Zealand Government has released a discussion document setting out a number of proposals for addressing hybrid mismatch arrangements and an alert is now available.
Brazil: The Brazilian Revenue Authority has updated its list of low tax jurisdictions and privileged tax regimes, which will now include Curacao, Saint Martin and Ireland.
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 our employment, reward and mobility newsletter, as well as 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.
Finance Act 2016 receives Royal Assent
+ 44 20 7951 2486
Building a business tax blueprint for the UK post-Brexit
+ 44 20 7951 0150
European Court releases two judgments on the right to deduct VAT against incomplete invoices
+ 44 20 7951 4963
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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Chris Sanger, UK&I Head of Tax Policy and Tim Steel, UK&I Tax Markets Leader, highlight the key findings from our recent survey of over 175 tax and finance professionals on how the tax system affects the UK’s attractiveness post-Brexit.
What Brexit means for businesses
We explore the implications of the UK’s decision to leave the European Union.