Midweek Tax News

On 12 September, HMRC published further draft guidance on the new Multinational Top-up Tax (MTUT) and Domestic Top-up Tax (DTT), which will implement the OECD Pillar Two income inclusion rule (IIR) in the UK. The legislation for these taxes is included in Finance (No.2) Act 2023 and both taxes apply to large multinational enterprises for accounting periods beginning on or after 31 December 2023.

This release of draft guidance updates the previous version of the draft guidance, released in December 2023. It includes all previously released pages, with updates in some cases, together with new pages covering a number of areas. New sections include those covering the attribution of top-up amounts to responsible members, and the application of the QDMTT safe harbour rules. Existing sections which have been revised include those relating to the transitional safe harbour, deferred tax accounting and protected cell companies.

HMRC states that a supplementary release of draft guidance will follow in due course, including the remaining draft guidance on flow-through entities, joint ventures, the insurance sector, additional top-up amounts, and the undertaxed profits rule (UTPR).

HMRC invites comments from stakeholders on the 12 September draft guidance by 23 October 2024, and states that publication of its guidance manual will begin following the review of consultation responses.

As highlighted in Midweek Tax News last week, on 10 September 2024 HMRC published the latest document in its series of Guidelines for Compliance (GfC), aiming to reduce uncertainty for UK businesses by providing greater clarity and transparency of HMRC’s compliance expectations in respect of transfer pricing. This wide-ranging publication is likely to have implications for many multinational groups operating in the UK.

In a webcast at 15:00 Thursday, 26 September, specialists from our UK transfer pricing team will discuss the key points of the GfC document. Our panel will consider a number of topics including:

• The scope and layout of the new guidelines
• Which taxpayers may be affected
• The impact on tax governance roles
• Risk areas perceived by HMRC
• Possible immediate actions

To join this event, please register here. In addition, our tax alert is now available and provides more detail on the new GfC document.

HMRC has provided an update on the circumstances in which it will agree to appoint a corporate interest restriction (CIR) reporting company on behalf of a group, in cases where the group has not made a valid appointment before the 12 month deadline for doing so.

In a new page added to its Corporate Finance Manual, HMRC states that it will do so only in “exceptional circumstances”. The guidance lists a small number of circumstances in which HMRC would normally agree to appoint a reporting company, including where a group has been given incorrect information by HMRC, and where HMRC online service issues have prevented the group from making an appointment. It also sets out a number of circumstances in which HMRC would normally refuse to make an appointment on a group’s behalf, including where a group had been unaware of the need to make an appointment, or where a group incorrectly assumed that the submission of an interest restriction return constituted an appointment of a reporting company.

On 11 September, Regulations were made which make changes to the specified additional information which taxpayers are required to supply in support of a claim for R&D tax credit relief. These amendments reflect the changes to the R&D tax credit relief regime made by FA 2024 (which introduces the new merged R&D scheme, together with additional relief for loss-making, R&D-intensive SMEs through a higher rate of payable tax credit).

In Professional Game Match Officials Ltd (PGMOL), the Supreme Court (SC) has unanimously dismissed the taxpayer’s appeal against the decision of the Court of Appeal (CA) and has remitted the case to the First-tier Tribunal (FT) for it to decide whether, in the light of all relevant circumstances, the individual contracts were contracts of employment.

PGMOL provides referees and other match officials for the most significant football competitions. The case concerned the employment status of group of part time referees, who were typically offered a refereeing appointment by PGMOL on the Monday preceding a Saturday match. When a referee accepted the offer of a match appointment, a contract was formed under which the referee agreed to officiate and submit a match report and PGMOL agreed to pay the appropriate fee.

The underlying question considered in PGMOL’s appeal was whether these individual contracts were contracts of employment and specifically whether two key elements for the establishment of an employment contract were present: (i) the mutual obligations of the employee and the employer and (ii) a sufficient degree of control by the employer over the employee.

The First-tier Tribunal (FT) found in favour of PGMOL, holding that the contracts were not contracts of employment because there was insufficient mutuality of obligations and PGMOL had insufficient control over the referees under the contracts. The Upper Tribunal held that the FT had misapplied the law on control, but dismissed HMRC’s appeal on the basis that there was insufficient mutuality of obligation. However, the CA allowed HMRC’s appeal as regards mutuality of obligation and remitted the case to the FT to re-consider both issues on the basis of its original findings of fact. PGMOL then appealed to the Supreme Court.

The Supreme Court has unanimously dismissed PGMOL’s appeal, holding that the minimum requirements of mutuality of obligation and control necessary for a contract of employment between the National Group referees and PGMOL were satisfied in relation to the individual contracts. With regard to mutuality of obligation, the SC distinguished between overriding or umbrella contracts (which govern continuous employment) and individual contracts of the kind arising in this case. In the case of individual contracts, it is not necessary that mutual obligations between the parties exist before the engagement commences. A referee and PGMOL were under mutual contractual obligations from the time in a given week that the referee accepted the offer of a match on the Saturday of that week. It did not matter that either party had a right to cancel the engagement without penalty.

With regard to control, the SC considered that the Court of Appeal was correct to conclude that the contractual obligations imposed on referees as to their conduct during an engagement from the time the match was accepted to the time when the match report was submitted, and as to their conduct during the match, was capable of giving PGMOL a sufficient framework of control to meet the control test for employment purposes.

In light of its conclusion that these minimum requirements were met, the SC remitted the case to the FT for it to decide whether, in the light of all relevant circumstances, the individual contracts were contracts of employment.

In its 2023-24 Programme for Government, the Scottish Government stated that it would seek the transfer of powers to introduce a new tax in Scotland, equivalent to the UK Government’s building safety levy for England. In January 2024, the UK and Scottish Governments launched a joint consultation seeking views on the devolution proposal, and in April 2024 the Conservative Government confirmed its intention to propose legislation to devolve powers to the Scottish Parliament so that the latter can legislate for the levy. The new Government has now laid a draft statutory instrument to devolve powers to the Scottish Parliament to legislate for this new levy.

On 10 September, the UK Government published a Statement of Changes to the Immigration Rules (HC 217). Amongst other changes, the Statement implements changes to the UK Electronic Travel Authorisation (ETA) Scheme – under which certain individuals travelling to the UK are required to obtain a travel authorisation prior to entering the UK – and introduces amendments to the EU Settlement Scheme (EUSS), among other changes. Further detail is available in our global immigration alert.

On 12 September. the US Treasury and the IRS released proposed regulations on the application of the 15% Corporate Alternative Minimum Tax (CAMT) on the adjusted financial statement income (AFSI) of large corporations. The proposed regulations contain comprehensive rules for determining AFSI, whether a corporation is an applicable corporation (including rules for foreign-parented multinational groups), and the determination of the CAMT foreign tax credit. Stakeholders can comment on the proposed regulations by 12 December 2024 and there is a public hearing scheduled for 16 January 2025. Further details are available in our weekly US tax alert.

Also on 12 September, the US Treasury issued a notice providing penalty relief for corporations that fail to pay estimated taxes with respect to CAMT liabilities for tax years that begin after 31 December 2023 and before 1 January 2025. Further details are available in our global tax alert.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

United States: The US Tax Court has ruled that a US corporation with a non-calendar year CFC can claim a dividends-received deduction under IRC Section 245A for part of its 2017 repatriation tax inclusion, but cannot claim foreign tax credits for taxes related to the Section 78 dividend. The Court's ruling is significant for taxpayers with fiscal-year CFCs, who may want to consider filing protective or actual refund claims.

Sweden: The CJEU has held that Sweden's withholding tax on dividends paid to foreign public pension funds violates EU free movement of capital. Foreign funds may therefore wish to consider reclaiming withheld taxes.

Colombia: The 2024 Colombian tax reform Bill proposes a progressive corporate income tax rate and a reduction of the marginal rate, an increase in the minimum tax rate from 15% to 20%, and a rise in the capital gains tax rate from 15% to 20%, amongst other measures.

Peru: The effective date for non-resident digital service providers in Peru to declare and pay 18% VAT has been delayed by two months, to 1 December 2024.

Taiwan: Taiwan's Ministry of Finance has proposed raising the alternative minimum tax (AMT) for multinational enterprises with over €750m in annual revenue to 15%. However, the AMT regime will not qualify as a Pillar Two Qualified Domestic Minimum Top-up Tax (QDMTT) so groups will need to perform analysis to understand what they are required to pay.

Taiwan: To attract foreign investment in the Taiwan stock market, the Financial Supervisory Commission has announced that foreign institutional investors may appoint more than one local custodian.

The September edition of PE Watch, our summary of the latest international developments regarding permanent establishments, is available. This edition highlights a Danish ruling that a Swedish company had established a permanent establishment in Denmark due to its CEO working partially from home in Denmark.