A number of positive measures were announced which will be of great interest to MNCs, as well as arguably the most significant change to the taxation of property since the introduction of SDLT in 2003.
When the government announced its intention to move to a ‘single annual fiscal event’ in the autumn, I did wonder whether the chancellor was also hoping to deliver a first Autumn Budget to remember for 2017. From a tax perspective, you could argue that in some ways the chancellor succeeded, as you could see certain themes and an element of coordination in the measures announced (in particular with respect to research and development and the digital economy).
With a tax code as long and complicated as the UK’s, it is always inevitable that MNCs will need to deal with annual changes to existing legislation and an ever increasing number of anti-avoidance provisions. However, there were a number of positive measures announced which will be of great interest to MNCs, as well as arguably the most significant change to the taxation of property since the introduction of SDLT in 2003.
The full Finance Bill is due to be published on 1 December 2017, although some draft legislation and policy papers were published on 13 September 2017. The scope of the measures outlined below will therefore become clearer as further draft legislation and related policy papers and explanatory notes become available.
First movers again
The government has published a position paper on various aspects of corporate taxation of the digital economy. Whilst the position paper recognises the need for international cooperation in this area, and expects this to be led on a global basis by the work of the G20/OECD Digital Task Force, it is interesting to note that the UK government is looking at turnover taxes as a potential interim measure. The UK is clearly keen to provide thought leadership on this issue (as well as possibly being first to implement specific measures), as it has done on a number of BEPS matters.
Whatever your view on the pros and cons of being a first mover, the position paper raises interesting points on how digitalisation can impact business models and the value of data for such businesses. It also recognises that there are a number of complex issues with the design of any legislation; for example, how to distinguish digital companies from other businesses. It will be necessary to ensure appropriate rates for any taxes on digital profits and there are important policy decisions to be made with respect to related activities and funding or capital investment. It will also be important for the new rules not to create a barrier to new businesses.
The position paper is open for consultation until 31 January 2018, which does not seem long enough for such an important and complicated topic. If the UK position is to become a blueprint for the rest of the world, it may be prudent to keep the consultation open for longer, particularly when you consider that the G20/OECD Digital Task Force is not due to deliver its interim report until April 2018.
From first mover to arguably last mover, the UK will seek to tax property gains by non-residents from April 2019 (as is currently the case in several other countries). The new rules will apply to direct disposals of commercial property, and to residential property not already within the scope of the existing residential property capital gains tax rules, which were introduced in 2015. The rules will also apply to indirect disposals of entities which derive 75% or more of their value from UK land and where the offshore seller holds at least a 25% interest in that entity over a five year period.
The proposals are stated to be subject to consultation, but there are a number of details already provided for on how existing property holdings will be rebased as of April 2019; and on the interaction with existing exemptions for widely held offshore companies and the availability in certain circumstances of the substantial shareholdings exemption. There is also an anti-forestalling measure, with immediate effect, which would not allow double tax treaties to be used to prevent the taxing of certain indirect disposals. Such a level of detail suggests that most policy decisions have already been made on these proposed rules, but the government would be wise to listen to input from the wider property sector, as UK commercial property forms an important part of the UK economy.
On a related matter, and following an earlier government consultation, it has been confirmed that from April 2020 non-UK resident companies will be chargeable to corporation tax, rather than income tax on UK property income. This continues a theme of seeking consistency in the taxation of UK and non-UK companies, and would bring non-resident landlords within the scope of recently introduced rules restricting both the use of losses and the availability of deductions for financing costs.
Other measures to note
Much has been made of the UK’s insistence on being the first country to introduce the OECD BEPS 2 and BEPS 4 recommendations into UK domestic law. The accelerated legislative timetable created a number of areas of uncertainty and technical anomalies. However, to its credit, HMRC has listened to representations on these issues and a number of technical changes to the hybrid rules and corporate interest restriction rules will be included in the Finance Bill. Amongst other things, there will be a number of clarifications which will be helpful for the investment fund and asset management sectors.
Other material points for MNCs to watch out for are:
Those of you from the oil and gas sector would also be well advised to look at the numerous changes announced for that sector. Space and timing considerations do not allow full justice to be done to those proposals in this article.
A number of positive measures were announced which will be of great interest to MNCs, as well as arguably the most significant change to the taxation of property since the introduction of SDLT in 2003.
When the government announced its intention to move to a ‘single annual fiscal event’ in the autumn, I did wonder whether the chancellor was also hoping to deliver a first Autumn Budget to remember for 2017. From a tax perspective, you could argue that in some ways the chancellor succeeded, as you could see certain themes and an element of coordination in the measures announced (in particular with respect to research and development and the digital economy).
With a tax code as long and complicated as the UK’s, it is always inevitable that MNCs will need to deal with annual changes to existing legislation and an ever increasing number of anti-avoidance provisions. However, there were a number of positive measures announced which will be of great interest to MNCs, as well as arguably the most significant change to the taxation of property since the introduction of SDLT in 2003.
The full Finance Bill is due to be published on 1 December 2017, although some draft legislation and policy papers were published on 13 September 2017. The scope of the measures outlined below will therefore become clearer as further draft legislation and related policy papers and explanatory notes become available.
First movers again
The government has published a position paper on various aspects of corporate taxation of the digital economy. Whilst the position paper recognises the need for international cooperation in this area, and expects this to be led on a global basis by the work of the G20/OECD Digital Task Force, it is interesting to note that the UK government is looking at turnover taxes as a potential interim measure. The UK is clearly keen to provide thought leadership on this issue (as well as possibly being first to implement specific measures), as it has done on a number of BEPS matters.
Whatever your view on the pros and cons of being a first mover, the position paper raises interesting points on how digitalisation can impact business models and the value of data for such businesses. It also recognises that there are a number of complex issues with the design of any legislation; for example, how to distinguish digital companies from other businesses. It will be necessary to ensure appropriate rates for any taxes on digital profits and there are important policy decisions to be made with respect to related activities and funding or capital investment. It will also be important for the new rules not to create a barrier to new businesses.
The position paper is open for consultation until 31 January 2018, which does not seem long enough for such an important and complicated topic. If the UK position is to become a blueprint for the rest of the world, it may be prudent to keep the consultation open for longer, particularly when you consider that the G20/OECD Digital Task Force is not due to deliver its interim report until April 2018.
From first mover to arguably last mover, the UK will seek to tax property gains by non-residents from April 2019 (as is currently the case in several other countries). The new rules will apply to direct disposals of commercial property, and to residential property not already within the scope of the existing residential property capital gains tax rules, which were introduced in 2015. The rules will also apply to indirect disposals of entities which derive 75% or more of their value from UK land and where the offshore seller holds at least a 25% interest in that entity over a five year period.
The proposals are stated to be subject to consultation, but there are a number of details already provided for on how existing property holdings will be rebased as of April 2019; and on the interaction with existing exemptions for widely held offshore companies and the availability in certain circumstances of the substantial shareholdings exemption. There is also an anti-forestalling measure, with immediate effect, which would not allow double tax treaties to be used to prevent the taxing of certain indirect disposals. Such a level of detail suggests that most policy decisions have already been made on these proposed rules, but the government would be wise to listen to input from the wider property sector, as UK commercial property forms an important part of the UK economy.
On a related matter, and following an earlier government consultation, it has been confirmed that from April 2020 non-UK resident companies will be chargeable to corporation tax, rather than income tax on UK property income. This continues a theme of seeking consistency in the taxation of UK and non-UK companies, and would bring non-resident landlords within the scope of recently introduced rules restricting both the use of losses and the availability of deductions for financing costs.
Other measures to note
Much has been made of the UK’s insistence on being the first country to introduce the OECD BEPS 2 and BEPS 4 recommendations into UK domestic law. The accelerated legislative timetable created a number of areas of uncertainty and technical anomalies. However, to its credit, HMRC has listened to representations on these issues and a number of technical changes to the hybrid rules and corporate interest restriction rules will be included in the Finance Bill. Amongst other things, there will be a number of clarifications which will be helpful for the investment fund and asset management sectors.
Other material points for MNCs to watch out for are:
Those of you from the oil and gas sector would also be well advised to look at the numerous changes announced for that sector. Space and timing considerations do not allow full justice to be done to those proposals in this article.
