Japan tax newsletter | 31 October 2018

UK’s Autumn Budget 2018 highlights

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The UK’s Autumn Budget 2018 was announced on 29 October 2018 by the Chancellor Phillip Hammond. Given Brexit uncertainty, there was not much scope for wholesale change to the tax regime or for any significant tax-giveaways, although it should be noted that the UK will go ahead and reduce corporate tax to 17% in 2020. Notably, in confirming the introduction of a new Digital Services Tax (DST) in 2020, the UK has shown that it will continue to pursue the BEPS agenda faster than most other countries. There shall also be some realignments of certain corporate tax items, which Japanese groups should analyze in detail if they are relevant to them based on their specific facts. The Chancellor also made it clear that if economic circumstances were to change in the event of a “no deal” Brexit, he would consider fiscal interventions including potentially upgrading the Spring Statement in 2019 to a full Budget.

Key changes to the corporate tax regime included:

  • Digital Services Tax
  • Goodwill
  • Degrouping charge
  • Capital Allowances (UK tax depreciation for qualifying assets)
  • Corporate capital loss restriction
  • Offshore receipts in respect of intangible property (formerly royalty withholding tax)
  • Permanent establishment anti-fragmentation
  • Tax rates

Overall the moves show continued focus on attracting investment from international businesses, while aligning the rules and pursuing the BEPS agenda. Japanese corporates will continue to focus on the impact of a lower headline tax rate for anti-tax haven purposes, and should consider the impact of the various measures outlined above, on their business operations in and with the UK. While the new DST may have limited impact on many Japanese corporates at present, it is an indication of the future direction of tax legislation as well as an instance of the UK moving ahead of other countries in implementing change in this area. The message from the UK Chancellor is that the UK remains open for business.

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