A weekly update on tax matters to 20 October 2020
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.
Following the European Council conclusions last week, which Boris Johnson said leave the UK without a basis to continue trade negotiation unless there is a fundamental change in the EU's negotiating position, the Government has launched a campaign urging businesses to prepare for “Australia-style” trading arrangements from 1 January 2021. Australia does not have a Free Trade Agreement with the EU, instead it has an agreed ‘Partnership Framework’.
The ‘Time is running out’ campaign will encourage businesses to act now to prepare for the guaranteed changes at the end of the year. In a press release on 18 October, Business Secretary Alok Sharma said: “With just 75 days until the end of the transition period, businesses must act now to ensure they are ready for the UK's new start as an independent trading nation once more. There will be no extension to the transition period, so there is no time to waste.”
In addition, HMRC has written to 200,000 traders who trade with the EU to set out the new customs and tax rules coming into place and how to deal with them.
Whether or not a Brexit deal is agreed, there will be many changes as of 1 January 2021. Our Brexit readiness guide looks at the immediate commercial considerations and actions that businesses can still take to get Brexit ready, with top tips on tactical implementation.
UK Government response to consultation on departure from retained EU case law by UK Courts and Tribunals
From January 2021, UK Courts, rather than the Court of Justice of the European Union (CJEU) will be the final arbiter of laws impacting UK businesses. However, the EU (Withdrawal) Act 2018 (2018 Act) provided that the EU law the UK has chosen to retain is to be interpreted in line with the principles laid down by, and decisions of, the CJEU, as modified by UK law from time to time, subject to certain exceptions (retained EU case law).
The 2018 Act vested in the UK Supreme Court and High Court of Justiciary in Scotland (in specified cases) the power to depart from retained EU case law, applying their own tests for deciding whether to depart from their own case law when doing so. Following consultation, the Government has concluded that the power to depart from retained EU case law should be extended to the following courts: the Court of Appeal in England and Wales; the Court of Appeal of Northern Ireland; the Court Martial Appeal Court; the High Court of Justiciary in Scotland when sitting as a court of appeal in relation to a compatibility issue or a devolution issue; the Inner House of the Court of Session; the Lands Valuation Appeal Court; and the Registration Appeal Court.
The Government will now lay in Parliament a Statutory Instrument that will make Regulations to give effect to this policy. This will be considered and debated by Parliament and, if approved by both Houses, will come into effect at the end of the Transition Period.
Exporting goods from Great Britain to the EU from 1 January 2021: HMRC confirms that Intrastat declarations will not be required
HMRC's guidance which provides information for businesses on importing and exporting goods between Great Britain (GB) and the European Union (EU) has been updated to confirm that businesses will not need to submit Intrastat declarations for goods exported from GB to the EU after 1 January 2021. However, Intrastat declarations will still be required for the following:
- Goods imported into GB from the EU (for the whole of 2021)
- Goods imported into Northern Ireland (NI) from the EU (for the lifetime of the NI Protocol – this will be a minimum of 4 years)
- Goods exported from NI to the EU (for the lifetime of the NI Protocol – this will be a minimum of 4 years)
This week's VAT News contains details of further Brexit-related indirect tax developments this week.
OECD publishes blueprints for Pillars One and Two: global alerts
As previously highlighted, on 12 October the OECD published detailed technical blueprints for Pillar One and Pillar Two of its ongoing work to reach a multilateral solution to the tax challenges arising from the digitalisation of the economy (BEPS 2.0). Broadly, Pillar One deals with the reallocation of taxing rights, and Pillar Two relates to the proposal for a global minimum tax.
Our global alerts for Pillar One and Pillar Two provide a detailed discussion of the OECD blueprint documents. The alerts provide a useful discussion of the proposals and summarise the key points in the respective blueprints, each of which run to more than 200 pages.
G20 reaffirms commitment to ongoing OECD project
G20 Finance Ministers and Central Bank Governors have issued a joint communiqué on key topics discussed at their meeting on 14 October. It reaffirms the G20's commitment to the ongoing G20/OECD project on addressing the tax challenges arising from the digitalisation of the economy (BEPS 2.0) and stresses the importance of addressing the remaining issues to reach a global and consensus-based solution by mid-2021. Our global alert provides further details of the G20's communique.
Latest developments in the taxation of the digitalised economy : reminder of webcast 28 October
As a reminder, our global webcast on 28 October, at 16:00, will focus on the latest developments in the taxation of the digitalised economy. This 90-minute session will provide insight into the latest developments, including the interaction of BEPS 2.0 and country DSTs, the US presidential election, and the likely next steps for the many stakeholders involved in this global debate. In particular, our global panel will discuss:
- Global developments related to the proliferation of digital services taxes (DSTs), including an update on the US trade actions and EU-level activity
- An overview of the BEPS 2.0 Pillars 1 and 2 blueprints which were released on 12 October
To register to join the webcast, please click here.
Spain: Notwithstanding the progress at OECD level, Spain is pushing ahead with its own DST. The law introducing the Spanish DST was enacted on 16 October and will be applicable as of 16 January 2021. The Spanish DST is a 3% tax on gross income services from targeted online advertising, online intermediation services and the sale of user data. Our global alert provides more detail.
United Nations: In August 2020, the UN Committee of Experts on International Cooperation in Tax Matters published a draft UN model treaty article on digital services. A UN discussion paper is now available which summarises the progress made by the Subcommittee on Tax Issues on this topic and presents a revised draft proposal for a new Article 12B (Income from Automated Digital Services) in the UN model treaty.
The new draft article expands the taxing rights for States from which payments for “automated digital services” are made, ie allowing a withholding tax at a rate to be agreed bilaterally. The commentary suggests 3% or 4% rates to avoid excessive or double taxation.
The Committee will discuss the amended draft Article 12B in its meetings concluding on 29 October and decide how to take the matter forward.
In a statement issued on 15 October, following discussions with stakeholder groups, HMRC confirmed that the off-payroll working rules (IR35) are intended to apply to situations where there is no employment or agency worker relationship between the worker and the client or an agency or other third party in the labour supply chain, and the worker's services are provided through their own intermediary. Where a worker is already subject to PAYE on all of the income from an engagement as an employee, other than with their own intermediary (usually a personal service company), HMRC does not intend the off-payroll rules to apply.
HMRC's clarification on this point follows the introduction by FA 2020 of an amendment to s61O ITEPA, which relates to the conditions for the IR35 rules to apply where there is an intermediary which is a company. These amendments will come into effect from 6 April 2021. Various stakeholders had raised concerns that the amended conditions could, in certain circumstances, capture a wider range of companies providing a worker's services than personal service companies: mainly umbrella companies but also employers seconding employees and agencies providing workers. HMRC's statement this week confirmed that this was not the intention of the amended legislation; in effect, HMRC has accepted that it was never an intention of the reforms to stop a compliant umbrella company from operating as it does today when the new rules come into effect. It is possible that HMRC will, subject to ministerial approval, make legislative changes to remove the potential unintended consequences described above.
Other UK developments
In its report published on 11 February, the Office of Tax Simplification (OTS) issued a call for evidence in support of its review of claims and elections. In its report in response to this call for evidence, published on 16 October, the OTS explores ways in which the administrative processes for making claims and elections could be simplified – across income tax, corporation tax, capital gains tax and VAT – and makes 15 recommendations.
The recommendations that the OTS believes are the two most significant areas, which would benefit the most people, concern the functionality of HMRC online tax accounts and reducing the number of categories of employee flat rate expense claims. In relation to corporation tax loss restrictions, it is recommended that the Government should consider introducing a de minimis threshold below which companies would be exempt from reporting their deduction allowance on their return. Other specific recommendations made by the report include those relating to the operation of the employment related securities election under s431 ITEPA 2003, the potential introduction of a pooling mechanism for short life assets and aligning time limits for claims with the end of accounting periods/tax years (relevant for capital allowances claims).
As a reminder, today, 21 October, at 11:00 EY and SAP will host the first of a series of webcasts to understand how S/4HANA migration presents a signification opportunity for the tax function. The world of tax is changing, with data and technology increasingly becoming a top focus for both tax authorities and tax functions. There is a global trend towards digitalisation of tax authorities, with more and more tax authorities moving to digital ways of assessing and collecting tax and a huge increase in the requirements placed on taxpayers. The implementation of SAP S/4HANA provides an opportunity to respond to these challenges.
To register to join the webcast, please click here.
Other International developments
Advocate General (AG) Kokott has concluded, in an opinion issued on 15 October 2020, that the Polish tax on the retail sector and the Hungarian advertisement tax do not infringe EU State Aid rules, and more generally, State Aid rules do not prevent taxation on turnover at a progressive rate.
Poland introduced the retail levy in 2016, which taxed retailers on monthly turnover at progressive rates. Hungary introduced its advertising tax in 2014, which also applied at a progressive rate, but based on annual net turnover. In 2016 and 2017, the European Commission declared that both taxes constituted illegal State Aid, as they selectively favoured companies with a lower turnover. However, in 2019, the EU General Court found no evidence in either tax regime of any selective advantage; it concluded that the Commission was not entitled to infer solely from the progressive structure of the taxes that the they entailed selective advantages. The European Commission then appealed to the Court of Justice of the EU (CJEU).
The AG's opinion states that EU law shows that progressive taxes may be based on turnover, and State Aid can only exist if a generally applicable tax law is manifestly inconsistent. In the case of these taxes, no inconsistency was found.
The AG's opinion is not binding but it is often followed by the CJEU. The judgment of the CJEU in these cases is expected in the upcoming months.
The fourth annual EY Latin America Tax Summit is taking place virtually on 16-17 November 2020. The event will provide updates and insights for multinationals operating in Latin America or with plans to invest in the region. There are a number of excellent speakers lined up including EY leaders and industry professionals from companies with a large footprint in the region.
Over two half-day sessions, the summit will cover topics including the latest updates on tax and economic policy in the region, re-engineering the supply chain and global trade, and the direction of mergers and acquisitions. Private virtual client meetings are available from 18-20 November if you would like to discuss any topics in further detail with our EY tax professionals.
As a reminder, in this webcast, at 14:00 today, 21 October, our panellists will discuss the key operational aspects of compliance success in Mandatory Disclosure Regime (MDR) reporting, including the latest country developments; lessons learned from Germany, Poland and Finland where MDR reporting is already in effect; and practical considerations for what reporting in 2021 will look like, and how to tackle the challenges with efficiency. To register to join this event please click here.
To assist businesses in staying up to date with global tax-related COVID-19 developments, EY's Tax COVID-19 Stimulus Tracker provides a snapshot of the policy changes that have been announced in countries around the world. It is regularly updated and supplemented by individual global tax alerts.
Please also see links to a selection of our tax alerts in respect of the following non COVID-19 developments. Additional articles are available in our global tax alert library.
United States: The IRS has released final regulations which impose a new withholding tax on transfers by non-US persons of interests in partnerships that are engaged in a US trade or business.
Ireland: Ireland has released its 2021 Budget, including an extension to its Knowledge Development Box for a further two years to December 2020 and a reduction in VAT rates (to 9 percent) for the hospitality industry.
Luxembourg: The draft budget law for the year 2021 has been sent to the Luxembourg Parliament. No general tax increase is envisaged, but there are a number of tax measures affecting companies and individuals, including changes to the fiscal unity regime and a 20% withholding tax on certain real estate transactions.
Portugal: The Draft State Budget Law for 2021 has been submitted to the Portuguese Parliament. The proposals would strengthen the permanent establishment force of attraction principle, introduce new Real Estate Transfer Tax rules for the transfer of shareholdings and exclude offshore entities from access to public COVID-19 support.
Spain: Spain's Parliament has approved legislation introducing a new 0.2% Financial Transaction Tax (FTT) on the acquisition of shares of Spanish companies with a market capitalisation over €1bn. The FTT legislation will be applicable from 16 January 2021.
Israel: The Tax Authority has published a draft bill for public consultation, which would introduce substantial changes to the current transfer pricing reporting and documentation obligations of multinational enterprises in Israel. The changes incorporate the BEPS Action 13 requirements, including country-by-country reporting.
South Africa: New regulations reflecting changes to the Common Reporting Standard (CRS), required to enable South Africa to comply with its treaty obligations, have been made. The new regulations are expected to come into effect from 1 June 2021.
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.
Brexit: latest developments and webcast reminder
Sally Jones (+44 20 7951 7228)
Update on OECD project to reach a multilateral solution to the tax challenges arising from the digitalisation of the economy (BEPS 2.0)
Claire Hooper (+44 20 7951 2486)
Off-payroll working: HMRC statement clarifies intended scope of application where services are provided through an intermediary which is a company
Nicholas Yassukovich (+44 20 7951 9517)
For other queries or comments please email email@example.com.