Rather than treating joint ventures as automatically ‘connected’, the UK rules could be rewritten to reflect the commercial reality, which often will be that transactions are negotiated very much on an arm’s length basis. The CIOT suggests that a ‘rebuttal presumption’ around connectedness could remove from scope those transactions where the relationship between the parties can clearly be demonstrated to be at arm’s length.
Relaxing the rules for UK to UK transactions could reduce the compliance burden for business, although introducing a specific exemption would require detailed legislation which ‘would not be a simplification’.
Aligning UK rules with international standards for transfer pricing of financial transactions would provide greater clarity, although transitional rules would be needed in the interim.
Permanent establishment:
Aligning the UK definition of PE with the OECD Model would be a simplification in terms of having a broadly consistent set of rules across jurisdictions, but only to the extent that other countries adopt similar measures. The wider definition of PE in the OECD Model Rules could also increase the scope for disagreement.
Diverted profits tax:
Bringing DPT into the corporation tax assessment framework would be a simplification. The CIOT notes that this would, however, bring DPT within the scope of double tax agreements which could potentially frustrate its application to arrangements which had been targeted by the tax in the first place.
Rather than treating joint ventures as automatically ‘connected’, the UK rules could be rewritten to reflect the commercial reality, which often will be that transactions are negotiated very much on an arm’s length basis. The CIOT suggests that a ‘rebuttal presumption’ around connectedness could remove from scope those transactions where the relationship between the parties can clearly be demonstrated to be at arm’s length.
Relaxing the rules for UK to UK transactions could reduce the compliance burden for business, although introducing a specific exemption would require detailed legislation which ‘would not be a simplification’.
Aligning UK rules with international standards for transfer pricing of financial transactions would provide greater clarity, although transitional rules would be needed in the interim.
Permanent establishment:
Aligning the UK definition of PE with the OECD Model would be a simplification in terms of having a broadly consistent set of rules across jurisdictions, but only to the extent that other countries adopt similar measures. The wider definition of PE in the OECD Model Rules could also increase the scope for disagreement.
Diverted profits tax:
Bringing DPT into the corporation tax assessment framework would be a simplification. The CIOT notes that this would, however, bring DPT within the scope of double tax agreements which could potentially frustrate its application to arrangements which had been targeted by the tax in the first place.
