HMRC is consulting until 19 July 2019 on draft regulations to amend the new rules introduced by Finance Act 2019 taxing income from intangible property (IP) held by entities in low tax jurisdictions and used to support UK sales.
The legislation in FA 2019 Sch 3 followed the government’s December 2017 consultation on royalties withholding tax, and the announcement at Budget 2018 of a revised approach to taxing ‘offshore receipts in respect of intangible property’, involving a direct income tax charge on entities in low tax jurisdictions that hold IP and realise income from that IP where it is used to support UK sales.
These draft regulations make targeted amendments, which include:
extending the scope of the income tax charge in circumstances where the non-UK person is resident in a jurisdiction with which the UK has a double taxation agreement, but no tax relief available to that person under the provisions of the agreement;
modifying the definition of ‘UK sales’ to look through persons who acquire and resell goods or services without making any change (such as resellers), and by reference to persons at whom goods or services are targeted through online advertising;
introducing an exemption for companies resident in jurisdictions with which the UK does not have a double tax treaty and who would otherwise be liable to the charge, on the basis that these jurisdictions, to be specified in further regulations, will be those that do not pose a risk to the statutory purpose of the legislation;
ignoring sales made by third parties where the IP contribution to the UK sales is insignificant;
preventing double taxation of partners where the partnership itself is appropriately taxed on the relevant income in a jurisdiction with which the UK has a double tax treaty; and
providing for exemption where more than one tax charge under this measure applies to the same income in respect of related entities, such as where a royalty flows through multiple group companies from sub-licences of the same underlying IP.
Most of the amendments will have effect retrospectively from 6 April 2019, with the remainder applying only to amounts arising after the regulations are made. The government intends to make the final regulations in Autumn 2019. See bit.ly/2VVxLn5.
HMRC will make further regulations ‘in the coming months’ to specify those territories that do not pose a risk to the statutory purpose of the legislation, for the purposes of the exemption mentioned above.
Besides the draft regulations, HMRC has also published 29 pages of draft guidance on the new rules, which will form new chapter INTM870000 of the International Manual in due course (bit.ly/2YTN2GO).
HMRC is consulting until 19 July 2019 on draft regulations to amend the new rules introduced by Finance Act 2019 taxing income from intangible property (IP) held by entities in low tax jurisdictions and used to support UK sales.
The legislation in FA 2019 Sch 3 followed the government’s December 2017 consultation on royalties withholding tax, and the announcement at Budget 2018 of a revised approach to taxing ‘offshore receipts in respect of intangible property’, involving a direct income tax charge on entities in low tax jurisdictions that hold IP and realise income from that IP where it is used to support UK sales.
These draft regulations make targeted amendments, which include:
extending the scope of the income tax charge in circumstances where the non-UK person is resident in a jurisdiction with which the UK has a double taxation agreement, but no tax relief available to that person under the provisions of the agreement;
modifying the definition of ‘UK sales’ to look through persons who acquire and resell goods or services without making any change (such as resellers), and by reference to persons at whom goods or services are targeted through online advertising;
introducing an exemption for companies resident in jurisdictions with which the UK does not have a double tax treaty and who would otherwise be liable to the charge, on the basis that these jurisdictions, to be specified in further regulations, will be those that do not pose a risk to the statutory purpose of the legislation;
ignoring sales made by third parties where the IP contribution to the UK sales is insignificant;
preventing double taxation of partners where the partnership itself is appropriately taxed on the relevant income in a jurisdiction with which the UK has a double tax treaty; and
providing for exemption where more than one tax charge under this measure applies to the same income in respect of related entities, such as where a royalty flows through multiple group companies from sub-licences of the same underlying IP.
Most of the amendments will have effect retrospectively from 6 April 2019, with the remainder applying only to amounts arising after the regulations are made. The government intends to make the final regulations in Autumn 2019. See bit.ly/2VVxLn5.
HMRC will make further regulations ‘in the coming months’ to specify those territories that do not pose a risk to the statutory purpose of the legislation, for the purposes of the exemption mentioned above.
Besides the draft regulations, HMRC has also published 29 pages of draft guidance on the new rules, which will form new chapter INTM870000 of the International Manual in due course (bit.ly/2YTN2GO).
