This edition focuses on Brexit, the G20’s new focus on growth and certainty, EU developments and India’s new GST regime.
Global tax policy and controversy briefing
Autumn Statement 2016
Tax Insights: transformation and innovation
Is the gig economy a fad, or an enduring legacy?
Delivering for today, planning for tomorrow?
UK votes to leave
Year End Personal Planning Tax Guide 2015/16
Indirect tax developments in 2016
Global sustainability taxes
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
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 6 December 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 Bill 2017 draft clauses published
A significant amount of material was published on 5 December, as the first stage in the Finance Bill 2017 process. This included draft legislation, responses to consultations, new consultations and technical notes. Notwithstanding what was published, there is still more to come by January 2017. To read our overview of the key proposals, please follow this link.
Among the key pieces of draft legislation released were provisions on the deductibility of corporate interest and the restrictions on the use of corporation tax losses. Both pieces of legislation are as yet incomplete but, with the consultation responses, do give a clearer picture of how the new rules will operate once they come into force. More detail is also now available on the relaxation of the substantial shareholding exemption as a result of the review promised in the Business Tax Roadmap.
New rules to restrict interest deductions in line with the recommendations in Action 4 of the G20/OECD's base erosion and profit shifting (BEPS) project are to be introduced with effect from 1 April 2017. The draft legislation published appears to be broadly in line with the proposals set out in the May consultation document on the detailed design of the regime (restricting interest expense above a de minimis amount based on a fixed ratio or a group ratio rule and tightening the worldwide debt cap rule so that it is based on net interest), although there are some areas where changes are being made as a result of the representations received.
The rules are complex and may well require a number of notifications and elections to be made, some of which are irrevocable. Groups are likely therefore to need to look at the rules in detail, model the potential impact and consider what actions to take as a result. Our alert provides more detail on the legislation released this week while highlighting the provisions promised by the end of January 2017. It also considers what actions groups should take in advance of the new rules coming into effect.
Corporation tax loss relief
The consultation response document released yesterday confirmed that the Government remains committed to implementing these reforms with effect from 1 April 2017. Many of the key elements underpinning the calculation of the restriction in the utilisation of brought forward losses to 50% of profits incurred on or after 1 April 2017 (above a £5 million allowance per group) remain unaltered following consultation. However there were changes in the detail including new flexibility in allocating current year reliefs and changes to the definition of group for the purposes of the £5million allowance. The rules are complex and require detailed consideration on a case by case basis as they can result in less than 50% of profits being available to shelter with brought forward losses. A number of provisions, including anti-avoidance measures, are still to be published and are expected by the end of January 2017. To read our alert please follow this link.
Substantial shareholding exemption (SSE)
The Government is proposing to reform the SSE, which broadly exempts from taxation gains made by companies on the disposals of a ‘substantial shareholding’ in another company. The proposed reforms would apply to disposals from 1 April 2017 and include the following:
• A removal of the investing company trading condition so that the availability of SSE on a disposal will no longer depend on the status of the investing company or group
• An extension of the period over which the 12 month substantial shareholding requirement can be satisfied from two years to six years, which will partly alleviate the difficulties currently faced when disposals of shareholdings are fragmented over a length of time
• A removal of the post-disposal investee trading condition for unconnected party disposals, which will remove certain practical difficulties in share sale situations
• A broader exemption for certain institutional shareholders which provides for the availability of SSE without the need for the investee company to meet a trading test, and extends the definition of a substantial shareholding to investments of £50 million or more
To read more detail on the proposed reforms, please click here for our alert.
Further guidance released on country-by-country reporting
On 5 December 2016, the group that makes up the Inclusive Framework on BEPS, published additional guidance on country-by-country reporting (CBCR). This is the group established to formalise the enhanced cooperation between countries to implement the G20/OECD BEPS recommendations. The additional guidance covers a number of areas:
• Transitional filing options: the guidance suggests that it may be possible for an ultimate parent to voluntarily file in their territory of residence if legislation is in force by the first filing deadline, even if it does not apply to periods from 1 January 2016 (‘parent surrogate filing’). Several territories, including Russia, Switzerland and the United States have indicated that parent surrogate filing will be available in their territories. Surrogate filing, including parent surrogate filing, should mean that there are no local filing requirements for subsidiaries and the guidance includes conditions that will need to be met under surrogate filing provisions.
• Notification requirements during the transitional phase: the guidance suggests it may be appropriate for territories to provide transitional relief, either in legislation or in guidance, when notification of the reporting entity is required, to give groups time to identify who this is. Several territories, including the Netherlands, have already implemented a delay in the notification requirement. In the meantime, notification obligations may exist in a number of territories, with notifications due by 31 December 2016 for December year ends.
• Application to investment funds and partnerships: The guidance confirms there is no specific exemption for investment funds and, if the accounting rules require consolidation with the investment, this should create a group. This should apply for partnerships as well and, to the extent that a partnership is not resident in any jurisdiction, its items should be included in the stateless entities line to the extent that they cannot be attributable to a permanent establishment. The guidance also notes that any partners that are also part of the group should include their share of the partnership's items in their jurisdiction of tax residence.
• The impact of currency fluctuations on the €750m threshold: the guidance confirms that there is no requirement to periodically revise domestic thresholds to reflect currency fluctuations. However, the threshold (and domestic near-equivalents set in January 2015) may be included in the review of the CBCR reporting standard in 2020.
The group that makes up the Inclusive Framework has also published key details of the domestic legal frameworks for CBCR covering a number of territories. This includes details of the status of the legislation and the first periods for which a report is required and will be updated as Inclusive Framework members complete their legislative processes.
More details are available in our global tax alert.
European Commission unveils a package of proposals concerning the Digital Single Market
The European Commission has unveiled a series of measures aimed at improving the VAT environment for e-commerce businesses in the EU. The proposals follow the commitments set out by the Commission in the Digital Single Market strategy for Europe and the VAT Action Plan towards a single EU VAT area, published earlier this year.
The latest measures include:
• New rules allowing companies that sell goods online to make one quarterly return for the VAT due across the whole of the EU, using the online VAT One Stop Shop.
• Simplified VAT rules for start-ups and micro-businesses selling online. VAT on cross-border sales under €10,000 will be handled domestically. Small and medium enterprises will benefit from simplified procedures for cross-border sales of up to €100,000 with revised rules for identifying where their customers are based. Other simplifications will allow the smallest businesses to benefit from the same VAT rules as their home country, including invoicing and record keeping requirements;
• The removal of the low value consignment relief (LVCR). LVCR currently means that small consignments worth less than €22 imported into the EU are exempt from VAT;
• New rules enabling Member States to reduce VAT rates for e-publications such as e-books and online newspapers. Current EU rules allow Member States to tax printed publications such as books and newspapers at reduced rates, super-reduced or zero rates. E-publications are specifically excluded meaning that they must be taxed at the standard rate of VAT. Once agreed by all Member States, the new rules will allow Member States to align the rates on e-publications to those on printed publications.
These legislative proposals will now be submitted to the European Parliament for consultation and to the European Council for adoption. The proposal on e-publications can enter into force immediately upon approval by the Council. On the VAT e-commerce proposal, the first reforms are expected to be introduced in 2018, however other measures are expected to come into place in 2021 due to the need to develop IT systems.
Businesses affected by the proposals may wish to consider the impact of the changes further.
Other UK developments
Supreme Court commences hearing of appeal on triggering Article 50
On 5 December, the Supreme Court began hearing the appeal of the High Court's decision in R (Gina Miller and Deir Tozetti Dos Santos) v The Secretary of State for Exiting the European Union. The Supreme Court has confirmed that it granted applications to intervene in the proceedings from, amongst others, the Scottish and Welsh governments.
Should the Government lose the appeal (the judgment is expected in January 2017) it is reported that a very brief Bill is being prepared which could be fast-tracked though Parliament. The aim is that the Bill would be in such a brief form that any attempt to amend it would fail. Later today, 7 December, an Opposition Day Debate is scheduled on the Government's plan for Brexit. It seems that in response to the tabled debate, and the prospect of some Conservative MPs voting with the opposition, the Government may be willing to agree to publish a plan for Brexit before Article 50 is triggered. What form the plan might take and when it would be published is unclear, only that it would be published before Article 50 is triggered. The agreement to publish a plan would be in exchange for a commitment to invoke Article 50 before the end of March 2017.
Office of Tax Simplification publishes its first Focus Paper, which considers the ‘gig’ economy
On 2 December, the Office of Tax Simplification (OTS) published its first in a new series of Focus Papers. The OTS has traditionally concentrated on studying particular areas of the tax system and producing reports with recommendations. Whilst it has also published occasional papers on wider aspects, it plans to do more of this now that it has been placed on a statutory footing.
The Focus Papers will consider issues of concern with a view to stimulating debate and are informed by the OTS's evidence gathering and researches, without being presented as the product of full-scale evidence gathering. They are intended to have no recommendations or questions seeking a response, but the OTS notes that it may take up aspects into a more formal project in due course.
The first Focus Paper looks at the ‘gig’ economy, where organisations contract with independent workers for short-term or on-demand engagements, with introductions typically through a platform operator. The paper highlights several tax considerations for the individual, the platform operator and the hirer, as well as the possible implications for HMRC and the Exchequer. The OTS considers that a key issue is how ‘gig’ workers interact with the tax and pension systems and how that interaction can be made as simple as possible.
The OTS Focus Paper sits alongside other similar initiatives such as the enquiry launched by the Commons Business, Energy and Industrial Strategy Committee into the future world of work, focusing on the rapidly changing nature of work, as well as the Taylor Review, which is looking at how employment practices need to change in order to keep pace with modern business models.
Our report looks at whether the ‘gig’ economy is a fleeting fad, or an enduring legacy and considers the benefits and challenges for both businesses and ‘giggers’.
First-tier Tribunal finds payment towards dilapidations to be a capital receipt
In the case of Thornton, the First-tier Tribunal has held that a payment received in full and final settlement of issues relating to the surrender of a lease, that was in fact used to repair the property was a capital receipt.
The taxpayer and his tenant entered into an agreement to surrender a lease over flats in a very poor state of repair. The settlement was lower than the amount initially requested by the taxpayer to cover dilapidations. The Tribunal found that the taxpayer's compromise was to forego any rental element given that the original sum sought for dilapidations was higher than the settlement. The Tribunal highlighted the difficulty in finding case law exactly on point, given that cases are often fact specific. However, the case does highlight the potential problems if a settlement agreement is not itemised.
Clarifying the scope of Scottish income tax powers
The further income tax powers in Scotland Act 2016 provide the Scottish Parliament with full freedom to set the income tax rates and limits applicable to Scottish taxpayers on their non-savings and non-dividend income. This power will commence from 6 April 2017.
On 30 November, HMRC published a Technical Note that looks to build on legislation already in place, to clarify the manner in which the further income tax powers, devolved by Scotland Act 2016, interact with other areas of the income tax system and the resulting consequential changes to legislation that are required to achieve this. Draft regulations are available for comment until 31 December 2016.
Outcomes of the ECOFIN meeting on 6 December
On 6 December 2016, the Council adopted a directive granting access for tax authorities to information held by authorities responsible for the prevention of money laundering. The directive will require Member States to provide access to information on the beneficial ownership of companies. It will enable tax authorities to access that information in monitoring the proper application of rules on the automatic exchange of tax information. The directive will apply as from 1 January 2018 and Member States will therefore have until 31 December 2017 to transpose the directive into national laws and regulations.
The Council made further progress on preventing corporate tax avoidance, achieving a broad consensus on the draft directive tackling hybrid mismatches with third countries. The Council reached agreement on the text for most provisions, leaving just two issues to resolve in the coming weeks: rules that would allow Member States to apply limited exemptions and the date of implementation.
Ministers were also invited to adopt conclusions in response to the European Commission's package of proposals for a comprehensive corporate tax reform which includes the two step approach to a Common Consolidated Corporate Tax Base (CCCTB) and the proposal for a directive to improve double taxation dispute resolution mechanisms in the EU.
The Council agreed that work towards a CCCTB should start with Member States concentrating on the rules for calculating the tax base and, in particular, on the new elements of the relaunched initiative. If those could be agreed, Member States should then revisit the elements discussed under the 2011 proposal for a CCCTB and, once the discussion on these elements has been successfully concluded, examine tax consolidation.
US Treasury and IRS release regulations under Section 901(m), limiting creditability of foreign income taxes following covered asset acquisitions
On 6 December 2016, the US Treasury Department and the IRS issued temporary and proposed regulations under Section 901(m). That section limits the creditability of disqualified foreign income taxes following a covered asset acquisition (CAA). The temporary regulations generally apply to CAAs occurring on or after 21 July 2014, but also have limited applicability to transactions occurring after 1 January 2011.
The proposed regulations provide comprehensive guidance under Section 901(m). They would also add three new categories of transactions to the current list of CAA transactions. The proposed regulations will be effective on the date they are published as final regulations in the Federal Register.
Public consultation launched on the EU mutual assistance for the recovery of taxes directive
On 30 November 2016, the European Commission launched a public consultation to evaluate the legislation which allows EU Member States to provide mutual assistance to each other for the purposes of recovering taxes.
The consultation, which is open until 8 March 2017, is in the form of an online questionnaire. It seeks to gather views from stakeholders (which includes individuals, companies, organisations and academic researchers) about their experience of the current rules and to understand any need for further improvement of the legal, administrative or technical framework. The questionnaire is part of the ongoing evaluation and reporting exercise about the efficiency of the latest directive on mutual assistance, which was adopted in 2010 and came into force from 1 January 2012.
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.
France: Government issues decree potentially restricting time to file a tax case before French administrative courts
Belgium: Government issues forms and filing instructions for final implementation of transfer pricing documentation requirements (Action 13)
India: The Indian tax authority has announced that India and the United States have reached agreement on the first bilateral advance pricing agreement between the two countries.
Brazil: The Brazilian Federal Revenue Agency issues proposed Country-by-Country reporting rules.
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 Bill 2017 draft clauses published
+ 44 20 7951 2486
Further guidance released on country-by-country reporting
+ 44 12 1535 2745
European Commission unveils a package of proposals concerning the Digital Single Market
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- 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.