Tax news

Midweek Tax News

A weekly update on tax matters to 18 February 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.
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  • UK Budget: date confirmed, survey and Tax Focus webcast

    Yesterday, 18 February, the new Chancellor, Rishi Sunak, confirmed that the Budget would go ahead on 11 March as planned. This statement followed speculation that the Budget would be deferred following the resignation of Sajid Javid.

    What should the Chancellor focus on? Complete our quick poll

    In advance of the 11 March Budget, please share with us your views on the biggest issues facing the new Chancellor by taking part in a short anonymous survey. The survey contains three questions and will take only a few minutes to complete - click here to take part.

    Budget webcast: 12 March

    On Thursday 12 March, at 3:00pm, we will be holding a Tax Focus webcast which will provide a full analysis of the Budget. The EY ITEM Club will discuss the economic impact of the Chancellor’s announcements and EY tax specialists will assess the key tax implications for individuals, employers and businesses.

    To register, please click here.

  • UK CFC State Aid: HMRC writes to affect groups requesting SPF analysis

    On 2 April 2019, the European Commission announced that, between 1 January 2013 and 31 December 2018, the Financing Company Exemption (FCE) rules within the UK CFC regime constituted State Aid, to the extent that the FCE applied to income derived from significant people functions (SPFs) based in the UK.

    HMRC wrote last year to taxpayers potentially affected by the Commission's decision, requesting information regarding their FCE claims. Following taxpayers' responses to these requests, HMRC has now commenced writing to groups requesting a self assessment of the SPFs relating to the finance company (or companies) concerned, to enable HMRC to commence collecting the amounts which the Commission has determined is unlawful State Aid.

    In the letter, HMRC requests a detailed UK SPF and profit attribution analysis to identify the redetermined CFC profits subject to State Aid. It states that it expects taxpayers' analysis to take account of all the activity undertaken - from the first identification of the need for the financing/refinancing to the agreement of the CFC to enter into the relevant transactions. It also expects that the analysis should be based upon the group's review of all the contemporaneous correspondence and documents that led to the CFC making the loans.

    It is expected that groups will have a 60-day deadline to respond to this request from HMRC. Therefore, it is now more important than ever for affected groups to fully consider (if they have not already done so) their UK SPF position and the potential options to challenge assessments/recovery action.

    If you have received, or expect to receive, an information request from HMRC and would like to discuss how to respond, please get in touch with the contact listed at the end of this newsletter, or your normal EY contact.

  • FII GLO and Prudential claims: opportunity for taxpayers to resolve claims or to protect their position

    A number of taxpayers have outstanding tax claims which arise from the UK's taxation of inbound EU and non-EU sourced dividends in pre-2009 periods. These are based on the FII GLO for dividends paid by group subsidiaries, or Prudential (as the test claimant in the CFC & Dividend GLO) for dividends received from portfolio investments. The claims, if accepted by HMRC, would provide a credit against the UK tax liability on the receipt of the overseas-sourced dividend for foreign tax at the relevant foreign nominal rate which applied, or (if greater) the actual underlying tax suffered.

    HMRC has recently begun sending affected taxpayers a Business Brief which outlines, in general terms, which categories of these claims it will accept as being ‘valid’. HMRC stresses that the Brief is a general guide and sets out only broad propositions. It makes the point that the validity of statutory claims is a highly fact-sensitive issue. While it covers a number of examples (including looking at the position where dividends have been treated as exempt) it won't necessarily cover a specific situation.

    The litigation of the FII case has not yet finally concluded – there is a further appeal to the UK Supreme Court which is being heard between 18 and 20 February 2020 – however, we understand the issues under appeal are only relevant to those taxpayers with High Court claims based in restitution. However, the High Court's decision in Non-test claimants in the FII GLO released in July 2019 suggested that HMRC might continue to question the impact of the Dutch participation exemption on the treatment of dividends for these purposes. The Brief makes no reference to this point.

    Litigation also remains ongoing for the group of taxpayers with High Court claims in Class 8 of the CFC & Dividend GLO who are challenging the ruling from February 2019 that their claims, which were issued after 31 March 2010, were made out of time. The Brief makes the point that the treatment of non-portfolio dividends sourced from profits made outside the EU received on or after 31 March 2001 is also the subject of an appeal to the Supreme Court.

    Businesses that have outstanding claims based on FII GLO or Prudential should consider analysing whether these claims fall within the categories HMRC now accepts as “valid”, prior to engaging with HMRC to seek resolution of these claims, if at all possible before the end of the Brexit implementation period. The EU (Withdrawal) Act 2018 as amended means that taxpayers should be able to make or maintain claims based on a breach of EU law until the end of the implementation period (expected to be 31 December 2020). The process of engaging with HMRC should be started now, so that if HMRC considers it is presently unable to agree certain claims, steps can then be taken to reduce as far as possible the Brexit-related risks from claims remaining unresolved by the end of December 2020.

    To discuss the contents of the recent Business Brief, or for assistance analysing claims based on FII GLO or Prudential, please get in touch with the contact at the end of this newsletter.

  • BEPS 2.0: OECD tax report, impact assessment and EY webcast

    OECD tax report to the G20

    On 17 February 2020, the OECD Secretary-General published a tax report to the G20 finance ministers and central bank governors, in advance of their meeting on 22 and 23 February in Saudi Arabia.

    In relation to digital taxation, the report stresses the urgency to advance the multilateral negotiations and reach a consensus two-pillar proposal to “address the tax challenges of the digitalisation of the economy” (also known as ‘BEPS 2.0’). However, the OECD Secretary-General acknowledges that, in addition to the US proposal to make Pillar One a safe harbour regime, there are still significant policy differences to resolve, including in relation to the binding nature of dispute prevention and resolution mechanisms and the method of computation of Amount A (the new taxing right under Pillar One, which can apply regardless of physical presence).

    Nonetheless, the OECD Secretary-General states that he remains optimistic that agreement on key policy issues that would form the basis of a political agreement can be found at the Inclusive Framework's next plenary meeting scheduled for 1-2 July.

    OECD impact assessment

    On 13 February, the OECD hosted a webcast to share the preliminary impact assessment which has been carried out in respect BEPS 2.0. Overall, the combined effect of Pillars One and Two is expected to lead to a significant increase in global tax revenues and a reduction in profit shifting. The OECD estimates global net revenue gains of up to 4% of global corporate income tax revenues (USD 100 billion annually), and that the gains would be broadly similar across high, middle and low-income economies, except for investment hubs.

    EY Global Thought Centre webcast: 25 February

    As a reminder, an EY Global Thought Centre webcast focusing on the OECD's work on the BEPS 2.0 project will be held on 25 February, at 4:00pm. The webcast will cover how the project is expected to develop, how countries are taking unilateral actions now, and how businesses can start preparing for changes in the tax landscape.

    To register for this webcast, please click here.

Other UK developments

  • EY Retail Forum for Indirect Tax: 18 March

    We will be hosting our next Retail Forum for Indirect Tax (ReFIT) on Wednesday, 18 March from 10:00am to 2:00pm at our 1 More London Offices.

    The event will be a timely opportunity to review the impact of Brexit on the indirect tax landscape and how businesses are turning to technology to manage the increasingly complex compliance environment, both in the UK (with the introduction of MTD) and internationally, with ever tighter reporting deadlines and requirements to provide increasing levels of transactional information. This event should benefit all those working within finance and tax functions in a retail environment.

    Topics to be covered include:

    • EY's reflections on the current Brexit outlook in terms of the impact on retail businesses and manufacturers in the supply chain and what businesses should be thinking about during the transition period following the UK's departure from the EU on 31 January 2020
    • Budget 2020: update from the Budget on 11 March
    • Making Tax Digital: with VAT group and payment on account returns now being filed electronically, consideration of the digital journey and the types of solutions that should be considered (e.g. enhanced Excel spreadsheets, and automation, including EY's new SaaS GVRT)
    • Product file automation: a demonstration of intuitive technology (using machine learning) to streamline this time-consuming process
    • An update on hot topics and case law

    Please click here to register for the event.

  • Alternative to corporate interest restriction introduced for the purposes of withholding under Non-Residents Landlord Scheme

    Non-UK resident companies with UK property income will become chargeable to corporation tax from 6 April 2020, which means that they will also become subject to the Corporate Interest Restriction (CIR) rules. Some non-UK resident company landlords will remain part of the Non-residents Landlord (NRL) scheme – these companies will have an amount of income tax withheld by the tenant or agent, which will be offset against corporation tax liabilities. If the company landlord uses an agent to collect its rental income, the amount of income tax withheld can be reduced by expenses paid by the agent, including financing costs if the agent is reasonably satisfied those expenses are deductible. However the CIR rules are complex and HMRC recognises that some agents may have insufficient information to be reasonably satisfied that finance expenses would be deductible under these rules.

    Therefore an amending regulation has been made to the NRL Scheme. It introduces a rule, subject to an irrevocable election, to enable an agent of a non-UK resident company landlord to apply a simpler alternative to the CIR, for the purposes of determining the amount of tax to be withheld under the NRL Scheme. The alternative is a fixed allowance of 30% of the UK rental income net of deductible expenses other than financing costs.

    A non-UK resident company landlord remains subject to the normal corporation tax rules, including the CIR rules, and remains liable to pay any net corporation tax due once the amounts deducted at source are taken into account.

  • UK customs and VAT treatment of imports and exports after Brexit transition period - update

    As previously highlighted, the Government announced on 10 February that it would introduce full import controls on EU goods at the border after the transition period ends on 31 December 2020. This will mean traders in the EU and Great Britain will have to submit customs declarations and be liable to goods checks.

    It was also confirmed on 10 February that certain policy easements (including, albeit not explicitly mentioned, the Transitional Simplified Procedures) which were put in place in preparation for a potential no-deal exit will not be reintroduced. However, with regard to Postponed Accounting, we now understand that HMRC is still discussing this proposed easement and an announcement on this may be made in the coming weeks.

    Further detail of the Government's announcement last week is available in our global tax alert.

International developments

  • ECOFIN: Cayman Islands and three other jurisdictions are moved to EU list of non-cooperative jurisdictions

    EU Finance Ministers gathered on 18 February for a regular meeting of the EU Economic and Financial Affairs Council (ECOFIN).

    Ministers agreed to move four additional jurisdictions (Cayman Islands, Palau, Panama and the Seychelles) to the EU ‘blacklist’ of non-cooperative jurisdictions for tax purposes. This decision was taken on the basis that the four countries had not implemented the reforms that they had committed to by the agreed deadline for doing so.

    The Council also adopted simplified VAT rules applicable to small businesses, which will apply from 1 January 2025, and a set of rules to facilitate detection of tax fraud in cross-border e-commerce transactions, which will apply from 1 January 2024.

  • French digital services tax: update on collection

    On 10 February 2020, the French tax authorities (FTA) confirmed that payments of the two French Digital Services Tax (DST) instalments that would normally be due in April and November for 2020 will be postponed and consolidated into a single payment, to be made in December 2020, without the taxpayer facing penalties or late payment interest.

    This postponement is the result of ongoing discussions at the OECD, and with the US, on the reform of international tax rules. The FTA nonetheless has stressed that payment of the DST for the period 26 July to 31 December 2019 is still due. This payment is due in April 2020.

    Further details are available in our global tax alert.

  • 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.

    OECD : As highlighted in last week's Midweek Tax News, the OECD published its long-awaited guidelines on Financial Transactions Transfer Pricing (FTTP) on 11 February. A detailed discussion of the key items covered by the guidelines is now available in this global tax alert.

    OECD : Further to the publication of the OECD's consultation on Country-by-Country Reporting, a global tax alert is now available outlining the details of the document and the proposed changes being considered by the OECD.

    Portugal : The Portuguese Government has published revised draft legislation implementing the EU Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as DAC6).

    Poland : On 5 February 2020, a bill was submitted to the Polish Parliament to amend the mandatory disclosure provisions that have been in force in Poland since 1 January 2019.

    Romania : The Romanian Government has approved legislation implementing the EU Directive on the mandatory disclosure and exchange of cross-border tax arrangements.

    Malta : Malta has enacted legislation implementing the EU Directive on the mandatory disclosure and exchange of cross-border tax arrangements.

    Gibraltar : On 30 January 2020, HM Government of Gibraltar published regulations implementing the EU Directive on the mandatory disclosure and exchange of cross-border tax arrangements.

    Australia : The Australian Government has introduced into Parliament a bill to broaden the significant global entity (SGE). Laws affected by the expansion of the SGE definition include the multinational anti-avoidance law, diverted profits tax and country-by-country reporting.

Other publications

Please speak to your usual EY contact, or email us at eytaxnews@uk.ey.com, 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.

Further information

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.

UK Budget: date confirmed, survey and Tax Focus webcast
Mike Gibson (+44 20 7951 0568)

UK CFC State Aid: HMRC writes to affected groups requesting SPF analysis 
Claire Hooper (+44 20 7951 2486)

FII GLO and Prudential claims: opportunity for taxpayers to resolve claims or to protect their position
Richard Doran (+44 20 7951 0581)

BEPS 2.0: OECD tax report, impact assessment and EY webcast
Claire Hooper (+44 20 7951 2486)

For other queries or comments please email eytaxnews@uk.ey.com.