Tax Reform III rejected in referendum
In a referendum held on 12 February 2017, the Swiss electorate voted to reject Corporate Tax Reform III (CTR III), which had been approved by the Swiss Parliament. The main objectives of the reforms, which were scheduled to become effective on 1 January 2019, are to align domestic tax law with international standards by making it make it more compatible with the BEPS project proposals and enhance Switzerland’s attractiveness as a location for multinational companies. It is thought that the Federal Government will put forward a modified version of the proposal which, if accepted, would probably not take effect until 2020. See http://deloi.tt/2ljfuS1
EU ATAD 2: amendments to Hybrid Mismatch rules
At the December ECOFIN meeting, agreement was reached on the amendments to the Anti-Tax Avoidance Directive (ATAD) to cover Hybrid Mismatches in accordance with Action 2 of the BEPS project. The new text is a combination of a Presidential compromise and additional wording to protect financial traders and the regulatory capital to banks and insurers. The matter will be debated at future ECOFIN meetings (21 February and 21 March), since agreement has not been reached on the effective date. It seems that the Netherlands, and possibly other countries, would prefer a date later than 1 January 2019. See http://deloi.tt/2lPEc9w As mentioned in last week’s Business Tax Briefing, the Maltese presidency confirmed its aim of reaching agreement as swiftly as possible on the ATAD in its recently-published work programme.
European Parliament committees propose broader public country-by-country reporting
In April 2016, the European Commission published its proposal to amend the Accounting Directive (Directive 2013/34/EU) to ensure that large groups (those with turnover of €750 million or more) publish an annual report disclosing the profit and the tax accrued and paid in each Member State on a country-by-country basis in April 2016. The Slovakian presidency released an updated draft Directive in December 2016 to make the reporting fit more closely with the Accounting Directives. This updated draft proposed reporting by EU Member States, non-cooperative jurisdictions and, in aggregate, third countries, and included a proposed exemption for commercial confidentiality.
The ECON and JURI committees of the European Parliament have this week issued a common draft report on the European Commission’s original proposal (not on the updated draft issued by the Slovakian presidency) which recommends much broader public country-by-country reporting obligations. It suggests inter alia increasing the scope of groups and undertakings which would be affected; that information should be provided separately for each jurisdiction of operation (whether inside or outside the EU) and that a wider range of information be required for all groups or undertakings, whatever the nature of their business. It also proposes reducing the reporting threshold to a turnover of €40 million. The committees will now decide whether to accept these recommendations, after which the European Parliament will vote on the report. It is not known when the matter might be debated by the Council of Ministers.
Cash pooling: HMRC guidance
HMRC have published guidance on the transfer pricing aspects of cash pooling arrangements. The guidance covers, amongst other things, the setting of appropriate interest rates, the sharing of benefits and the consequences of netting balances. See our special bulletin for more detail here.
The next Dbriefs webcast is on Tuesday 21 February at 12.00 noon GMT/13.00 CET. From our UK tax focus series the topic is Losing Interest? Corporate Interest Deductibility – Part 2 and is a follow-up to our previous Dbriefs webcast on this topic. Hosted by Bill Dodwell, our panel of experts will discuss the revised draft of the corporate interest restriction legislation and how your organisation can prepare for the impact these rules will have. To register for the webcast, click here.
On Wednesday 22 February at 12.00 noon GMT/13.00 CET there is a webcast on Tax Data Analytics: Trends In 2017, from our tax management and tax accounting series. Jan van Trigt will be hosting the webcast and during the call our panel of experts will discuss the latest tax data analytics trends and how you can apply these trends to your business. To register for the webcast, click here.
Office of Tax Simplification update on current projects
The Office of Tax Simplification (OTS) has written to the Chancellor to update him on their current projects.
In relation to its review of the corporation tax computation, the intention was to deliver the final report before the Budget. However, following discussions with HMRC and HMT, including on the interactions with work on Making Tax Digital for companies, the OTS is now aiming for publication in the second half of March.
As planned, an interim report and a call for evidence on VAT will be published prior to the Budget, as the OTS works towards delivering its final report in advance of the Autumn Budget.
On the ‘paper’ Stamp Duty project, the OTS will publish a shorter note setting out the potential way forward before the Spring Budget. The aim is to publish a final report in the summer. See http://deloi.tt/2kxg6iX
HMRC Spotlights 35, 36: disguised remuneration: tax avoidance using annuities
HMRC have published Spotlight 35: disguised remuneration: tax avoidance using annuities and Spotlight 36: Disguised remuneration: schemes to avoid the loan charge. Spotlight schemes are generally those about which HMRC think there is the greatest need to warn potential users. Spotlight 35 explains that the scheme in question is mainly aimed at contractors. The scheme user is paid in two parts. The first part is a small salary on which there is little or no income tax or National Insurance Contributions liability. The second part is claimed to be non-taxable, as being a capital payment for a deferred annuity. HMRC say that schemes involving annuities are within the scope of the proposed new loan charge, which will apply to all outstanding disguised remuneration loans on 5 April 2019. See http://deloi.tt/2lQHVUl
Spotlight 36 explains that some promoters claim to have come up with schemes that enable users to avoid the proposed new loan charge on disguised remuneration loans which are outstanding on 5 April 2019. HMRC will investigate any attempts to avoid the charge. For transactions taking place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) may apply. After 14 September 2016, transactions where the GAAR applies will be subject to a 60% GAAR penalty. See http://deloi.tt/2lL5jqk
Euro Tyre: VIES not critical to intra-EU dispatch accounting
Some Member States (although not the UK) operate separate VAT registration rules relating to intra-Community supplies of goods. In Euro Tyre, the CJEU considered such rules in relation to sales of tyres by the Portuguese branch of a Dutch company, to its Spanish distributor. See http://deloi.tt/2lVCyUb The Portuguese tax authorities argued that the sales should not be zero-rated, as the distributor was not specifically registered for intra-EU acquisitions in Spain, and was not registered in VIES (the VAT Information Exchange System). The CJEU noted that the essential conditions for treating the sale as a cross-border supply (i.e. that in the goods had been transferred to another business) had been met, and that there was no evidence of any fraudulent intent. In those circumstances, a formal technical requirement such as inclusion in VIES should not prevent Euro Tyre from treating the sales as a zero-rated dispatch. This is another judgment which emphasises the importance of the underlying economic reality in determining intra-EC VAT accounting, although it serves also as a reminder that proper observance of the rules may avoid a dispute with the tax authorities in the first place. To discuss the case, please contact Helen Thompson on 020 7007 3713.
Transferring property to settle tax arrears not subject to VAT: Advocate General Opinion
Posnania Investments SA transferred property to the Polish tax authorities in partial settlement of tax arrears. The authorities considered that this transfer should be subject to VAT (in the same way that forced sale in the UK might be). However, AG Julianne Kokott disagrees. In her Opinion, she accepts that the property was transferred for consideration; but it was not transferred by a taxable person “acting as such” (even though Posnania was a company that dealt in property).See http://deloi.tt/2lOFYM8 According to the AG, the transfer of the property did not result from a negotiation in a competitive market, and could not therefore be treated as subject to VAT. On this analysis, a distinction arises between selling property and using the proceeds to settle tax arrears (which would involve a transaction that is potentially subject to VAT) and the transfer of property to the tax authority in settlement of tax arrears (which does not). To discuss the case, or its implications, please contact Ben Tennant on 0121 695 5828.