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 25 October 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.
European Commission proposes a Common Corporate Tax Base as a first step towards a Common Consolidated Corporate Tax Base
As we covered in our separate tax services alert circulated yesterday, on 25 October, the European Commission launched its proposals for a Common Corporate Tax Base (CCTB) across the EU. The Commission sees this as the first step of its relaunched proposals for a European Common Consolidated Corporate Tax Base (CCCTB), though that proposal will only be taken forward after political agreement has been reached on the CCTB.
The proposal is for the rules to be mandatory for groups with consolidated worldwide revenues greater than €750m in the preceding year. The scope covers EU tax resident companies as well as EU permanent establishments of non-EU companies. Consequently, UK groups may have subsidiaries or operations within the rules even if the rules do not directly apply to UK companies because the UK is no longer part of the EU. Other companies can elect into the regime.
Broadly, all revenues (which include proceeds of sales, proceeds from the disposal of assets and other profits distributions) will be taxable, although the CCTB rules include the following key measures:
• A participation exemption for chargeable gains on the disposal of shares where the tax payer has held at least 10% of the capital or voting rights for 12 months leading up to the disposal;
• An exemption for distributions received;
• A foreign permanent establishment exemption which would apply automatically;
• An allowance for equity combined with restrictions on relief for interest;
• Prescribed tax relief for depreciation and enhanced relief for R&D expenditure;
• A set list of non-deductible expenditure such as fines and penalties, bribes, distributions and capital costs and rules for deduction of entertainment costs;
• Mandatory exit taxation, based upon market value at the time of exit less value for tax purposes, on the transfer of assets, operations or residence.
The rules incorporate the measures included in the Anti-Tax Avoidance Directive (ATAD) which implement certain aspects of the OECD's BEPS proposals in the EU, including those announced on 25 October, alongside the CCTB proposal, to amend the ATAD (see below). They also deal with provisions, bad debts, hedging arrangements and contain transitional rules where companies enter and leave the CCTB regime.
At this stage we cannot say how likely the proposals are to be adopted, though there has already been some political objections to them. However the proposal are likely to be taken into account when the UK Government is considering its tax policy choices in light of Brexit, and its negotiating stance. Groups may therefore wish to add these proposals into their ongoing considerations as to future operating models and monitor how the proposals are received by Member States.
As a reminder our tax services alert contains more details and highlights some of the areas where the proposals differ from the current UK position.
Other European Commission proposals of 25 October 2016
The CCTB and CCCTB proposals above were only a part of a package of corporate tax reforms released yesterday, 25 October. The package also includes two other separate legislative initiatives: A Directive on Double Taxation Dispute Resolution Mechanisms in the European Union and amendments to the Anti-Tax Avoidance Directive (ATAD) as regards hybrid mismatches with third countries.
Improving dispute resolution mechanisms
The proposed new mechanism would be available to companies in respect of double taxation for all corporate tax issues. The intention is that the company subject to double taxation can initiate a procedure whereby the Member States in question must first try to solve the dispute amicably within two years.
If at the end of this period no solution has been found, the Member States should set up an Advisory Commission to arbitrate on the case. If the Member States fail to do this, the taxpayer can ask the national court to do so. This Commission will be comprised of three independent members and representatives of the competent authorities in question. It will have six months to deliver an opinion, after which the competent authorities have six months to either reach their own agreement to eliminate the double taxation or be bound by the decision of the Commission.
Hybrid mismatches with third countries
As part of the final compromise on ATAD that was reached on 20 June 2016, the ECOFIN Council called on the Commission to put forward a proposal on hybrid mismatches involving third countries, with a view to reaching an agreement by the end of 2016.
The proposal for a Directive addresses a number of hybrid mismatch arrangements that were not covered by the ATAD, including hybrid entity mismatches involving a third country leading to a double deduction or a deduction without an inclusion, as well as hybrid financial instrument mismatches involving a third country leading to a deduction without an inclusion. It also includes rules on hybrid permanent establishment mismatches, imported mismatches, hybrid transfers and dual resident mismatches.
All of the legislative proposals, including those for the CCTB/CCCTB will be submitted to the European Parliament for consultation and to the Council for adoption. Commissioner Moscovici was due to address the Parliament last night and will give a press conference this morning.
Upper Tribunal considers which member of a VAT group is entitled to make a VAT repayment claim
On 20 October 2016, the Upper Tribunal released its decision in the joined cases of Lloyds Banking Group plc, Standard Chartered plc, MG Rover Group Ltd and BMW (UK) Holdings Limited. The Upper Tribunal held that the right to make a VAT repayment claim belongs to the representative member of the VAT group even after the ‘real world supplier’ (RWS) leaves the VAT group.
In the Standard Chartered plc case, the First-tier Tribunal had previously held that where a company, which was a member of a VAT group and made supplies on which VAT was overpaid, left its VAT group, the right to claim the overpaid VAT remained with the representative member of the VAT group. However, in the MG Rover Group Ltd case, the First-tier Tribunal had held that where a company left its VAT group, it acquired the right to claim the overpaid VAT and that right was withdrawn from the representative member. The Upper Tribunal's decision in these joined cases, that the VAT repayment right belongs to the VAT group representative member even after the RWS leaves the group, provides greater certainty around which party is entitled to make a VAT repayment claim following the previously conflicting First-tier Tribunal decisions.
In reaching its decision, the Upper Tribunal points out that any potential unfairness caused by its decision could be resolved through specific contractual terms agreed between the relevant parties before the RWS leaves the group. The Upper Tribunal also clarified that in the event of a VAT group representative member being unable to make a claim, for instance, as a result of being in liquidation, an alternative party may be able to make the claim. This is an issue which the Upper Tribunal held should be considered on its individual merits. The Upper Tribunal refused to refer the case to the Court of Justice of the European Union.
This is a complex area and other litigation remains ongoing. Any taxpayers with VAT repayment claims in circumstances where the company that carried out the relevant transactions has been a member of one or more VAT groups may wish to consider the impact of these cases.
Our tax alert provides further information.
Other UK developments
Consultation on the taxation of ‘non-doms’
The further consultation on the taxation of non-domiciled individuals, launched in August 2016 as a follow on to 2015's original consultation in this area, has now closed.
In our reply, we have, voiced our concerns that there are a number of macro aspects to the issues under consultation that need to be considered.
We are concerned that the pace of enactment is adding to complexity, though this is needed to some extent, given that there are only seven months till the law comes into force. Delaying the effect of the changes until 6 April 2018 would allow non-domiciled taxpayers and their families, many of whom reside outside the UK, to carefully consider the effects on them and their international affairs, which are affected not only by UK tax law but by other considerations as well. It also allows time for the law to be tested and, if necessary, be amended in good time before the start date.
Please speak to your usual EY contact, who would be happy to discuss our response with you.
Consultation on salary sacrifice for the provision of benefits-in-kind
We have also responded to the August 2016 consultation on salary sacrifice for the provision of benefits-in-kind. This sought to explore the potential impact on employers and employees of limiting the range of benefits-in-kind that attract income tax and national insurance contributions (NIC) advantages when provided as part of a salary sacrifice arrangement.
In our reply we highlighted a number of considerations and consequences that we do not think the Government has fully taken into account, including the impact on the green agenda (for company cars), the socio-economic impact on low paid workers and the impact on certain public sector pension arrangements.
We also pointed out that the 6 April 2017 deadline is unrealistic. Most flexible benefit schemes are underpinned by IT systems and we will not know the final proposals for some time. It is highly unlikely that there will be enough time to amend the systems and fully test them. Employers will need to understand any new reporting requirements at the start of the new tax year and these will also need to be considered. Accordingly, we have suggested that the implementation date for any changes should be delayed by a year to enable these issues to be addressed.
Furthermore, salary sacrifice arrangements are a matter of employment law. A change to terms and conditions of employment may be required, which may take some time to agree, particularly where changes need to be agreed with unions and representative bodies and where arrangements have been implemented as part of collective bargaining arrangements.
If you would like to discuss any of the above points or indeed any other issues relating to the salary sacrifice proposals please get in touch with your usual EY contact.
Supreme Court rules on disclosure of taxpayer information
In a unanimous judgment, the Supreme Court allowed the taxpayer's appeal in the Ingenious Media Holdings case. The case concerned a decision by HMRC, acting through its then Permanent Secretary for Tax, to disclose information to journalists regarding tax avoidance schemes, including film investment schemes, in which it named Ingenious Media and its founder, among others, as the promoters of such schemes. The articles subsequently published in the newspaper drew upon and quoted HMRC's statements made.
The Supreme Court found that it is a well-established principle of the law of confidentiality that, where information of a personal or confidential nature is obtained or received in the exercise of a legal power or in furtherance of a public duty, the recipient will in general owe a duty to the person from whom the information was received or it relates. The tax affairs of individual taxpayers are matters between HMRC and the taxpayer, and confidentiality is a vital element in the working of the system.
Whilst the Court noted that this principle may be overridden by explicit statutory provisions, it found that the legislation in question permitted disclosure to the extent reasonably necessary for HMRC to fulfil its primary function. The Court did not seek to lay down a rule that disclosure can never be justified, but did say that such cases should be exceptional.
Extension of interim securitisation regime
HMRC is looking to further extend the interim regime applying to securitisation companies, which would otherwise expire by 1 January 2017, and has published draft regulations and an explanatory note.
The interim regime was introduced in 2005 to prevent securitisation companies from becoming adversely impacted by accounting volatility that may otherwise arise under International Financial Reporting Standards. The regime allows securitisation companies to use UK generally accepted accounting practice as it stood at 31 December 2004 for the purposes of calculating their tax computations, so that they continue to be taxed on their actual cash tax profit rather than their accounting profit.
The interim regime has already been extended twice, however there is still a small number of companies within the regime with securitised assets with a life of 25 years or more. The interim regime is therefore to be extended to allow those companies who wish to continue to use it.
It is expected that the regulations will come into force in December 2016 and apply to accounting periods ending before 1 January 2037. HMRC has noted that there is no intention to extend the regime beyond this date.
OECD launches global review of MAP programmes in line with BEPS Action 14
On 20 October 2016, the OECD released a bundle of peer review documents intended to form the basis of the Mutual Agreement Procedure (MAP) peer review and monitoring process under Action 14 of the BEPS Action Plan.
The OECD's final report on Action 14 outlines, inter alia, the minimum standards and best practices for resolving treaty-related disputes under the MAP. The documents released on 20 October 2016 form the basis on which this process will be moving forward and include the following:
• Terms of Reference which translate the minimum standard approved in the final Action 14 report into a basis for peer review;
• An Assessment Methodology for the peer review and monitoring process;
• A MAP statistics reporting framework to help ensure greater transparency on statistical information relating to the inventory, types and outcome of MAP cases through common reporting of MAP cases going forward; and
• Guidance on information and documentation to be submitted with a MAP request.
The OECD will also publish updated MAP profiles of all members of the Inclusive Framework, which contain information about each member's Competent Authority's contact details, domestic guidelines for MAP and other useful information for both tax authorities and taxpayers.
The OECD intends that actual peer reviews will be conducted in batches, with the first batch commencing in December 2016. The OECD also intends to seek taxpayer input before the launch of these reviews and a questionnaire for taxpayer input seeking such input is expected be published shortly, together with a schedule for review.
Ratification issues with the Comprehensive Economic and Trade Agreement between the EU and Canada
In July 2016, the European Commission proposed that the EU-Canada Comprehensive Economic and Trade Agreement (CETA) should be signed as a ‘mixed’ agreement. A ‘mixed’ agreement is one that includes areas that the individual EU states take decisions on. Such an agreement requires the consent of the European Parliament, and of all EU Member States through the relevant national ratification procedures.
The difficulties this raises have been highlighted in the last week by Belgium advising it is not in a position to sign the agreement. Although the Belgian Federal Government is in favour of the deal, objections have been raised in regional parliaments and other administrative bodies that also need to ratify the deal.
Some UK politicians see CETA as a possible model for a Brexit deal with the EU. However, whatever the merits of the CETA model, a key lesson for the UK and the EU may be in the difficulties in the ratification process.
Italy publishes draft fiscal budget for 2017
On 15 October, the Italian Premier, Matteo Renzi, confirmed details of the draft Italian Budget for 2017. This has been approved by the Italian Cabinet and must pass through the Italian Parliament by the end of the year. The Budget proposals will also need to be reviewed by the European Commission, which needs to issue an opinion on whether national budgets meet euro zone fiscal rules.
Among the details of the Budget reported in the press are the proposals that:
• The Italian corporate tax rate will fall from 27.5% to 24% for all businesses in 2017 (there are additional proposals for small businesses).
• The current ‘super’ depreciation allowance of 140%, which is available for purchases of machinery and equipment in the period to the end of 2016, will be extended into 2017. A further ‘hyper’ depreciation allowance of 250% will be introduced for investments in digital technology.
• The present 25% tax credit that is available in respect of a company's additional research and development expenditure will be increased to 50% and the maximum tax credit will rise from €5m to €20m per company.
• The voluntary disclosure program which closed on 30 November 2015 will be reopened.
CJEU considers whether a VAT number is required to zero-rate intra-community movements of goods
The Court of Justice of the European Union (CJEU) has released its decision in the German case of Josef Plöckl. The taxpayer transported a car from Germany to Spain and later sold it to a customer there, treating it as an intra-community supply and zero-rating it in Germany. The German tax authorities considered that this was a fictitious intra-community supply on the basis that the sale happened some months after the car arrived in Spain. As the taxpayer's VAT number in Spain was not provided, the German tax authorities considered that the supply could not be zero-rated in Germany.
The CJEU agreed with the German tax authorities that a fictitious intra-community supply had taken place on the basis that the identity of the customer in Spain was not known at the time of the transportation of the goods. However, the CJEU held that, as long as all of the substantive conditions laid down under EU law are met and there is no question of tax evasion, the taxpayer does not require a VAT number to zero-rate the intra-community movement, since this is a formal requirement imposed by the Member State.
This judgment is in line with other similar case law in this area. Businesses which have been assessed as a result of not meeting formal requirements laid down by the Member State, such as holding a customer VAT number in relation to intra-community movements of goods, may wish to consider whether there is potential to challenge such assessments.
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.
Cyprus: Cyprus amends its intellectual property regime to introduce a ‘modified nexus’ approach, in line with the OECD's recommendations to counter harmful tax practices.
France: French Public Register of Trusts is declared unconstitutional.
Brazil: Brazil amends regulations regarding the taxation of capital gains earned by non-residents and cross-border remittances for rental/lease of aircraft.
China: China's SAT issues new guidance on the administration of Advanced Pricing Agreements.
Singapore: Singapore releases tax guide on Country-by-Country Reporting.
Global Tax Policy and Controversy Briefing – Issue 18 The latest edition focuses on the themes of growth and tax certainty, both of which were key agenda items at the recent G20 Leaders' Summit. The Briefing includes a transcript of remarks given by the OECD's Pascal Saint-Amans at the EY aHead of Tax event in June, previewing the OECD's post-BEPS tax work. In addition, it explores the UK tax implications of Brexit, the EU's tax agenda for 2016/2017, a comparison of the US presidential candidates' tax proposals, and how data analytics are transforming tax administrations. The Briefing can be accessed here.
EY Worldwide Digital Tax Guide EY has launched the Worldwide Digital Tax Guide which updates and expands the existing Worldwide Cloud Computing Tax Guide. The new guide offers a thought-provoking look at certain sector-specific digital business models. It also features known and emerging tax and law issues, insights and opportunities with those business models, and analyses issues of nexus, indirect taxation and the BEPS landscape.
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.
European Commission proposes a Common Corporate Tax Base as a first step towards a Common Consolidated Corporate Tax Base
+ 44 20 7951 4246
Other European Commission proposals of 25 October 2016
+ 44 20 7951 2486
Upper Tribunal considers which member of a VAT group is entitled to make a VAT repayment claim
+ 44 20 7951 2279
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.