Panem et circensesThe Autumn Statement provided the headlines for the popular press: "Google tax" and reform of stamp duty. 552 pages of Draft Finance Bill 2015 constitutes the detail. A brief
Panem et circenses
The Autumn Statement provided the headlines for the popular press: "Google tax" and reform of stamp duty. 552 pages of Draft Finance Bill 2015 constitutes the detail. A brief exegesis of the Google tax follows.
Diverted Profits Tax ("DPT") is described by the Government as a new tax designed "to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK." Whilst HMRC will be holding an Open Day on 8 January 2015 to hear views regarding the technical aspects of the draft legislation, it is reasonable to assume that DPT will be introduced by Finance Act 2015. DPT will be applied at a rate of 25% from 1 April 2015. There are 2 circumstances when it will apply:
(i) when businesses "design their activities to avoid creating" a permanent establishment in the UK; or
(ii) where businesses create a tax advantage by using transactions or entities that "lack economic substance".
Small or medium-sized enterprises will not be subject to DPT and there will be an exemption where total sales revenues from all supplies of goods and services to UK customers do not exceed £10 million for a 12 month accounting period.
The process is that a company must notify HMRC if it considers that it is potentially within the scope of DPT within 3 months after the end of the accounting period. The company is not required to quantify the profits that it considers are potentially chargeable to DPT. HMRC may issue a preliminary notice of chargeability within 2 years after the end of the accounting period; the time limit is 4 years if no notification has been made by the company. After a preliminary notice has been issued by HMRC, the company has 30 days to make representations. Whilst the grounds on which representations can be made are unrestricted, HMRC may consider them only if they pertain to certain defined factual matters. Having considered the representations, HMRC must, within 30 days, either issue a charging notice or confirm that no charging notice is to be issued. DPT must be paid within 30 days from the issue of the charging notice. There is no right to postpone the tax.
The DPT administrative process requires a company first to determine whether it may be within the ambit of DPT, and, if so, to notify HMRC of this. It then permits the company to make representations (that could include representations on the company not being within the scope of DPT), but precludes HMRC from considering representations on DPT that do not fall within the prescribed matters. This process stands unhappily in contrast to, for example, the GAAR. There is no provision in Finance Act 2013 (or in the Taxes Management Act 1970) that imposes an obligation on a taxpayer to self-assess under the GAAR. A procedural precondition for the application of the GAAR is an officer of HMRC issuing a notice under paragraph 3, Schedule 42, Finance Act 2013 setting out, inter alia, the proposed counteraction to the tax arrangements that HMRC consider are abusive.
The UK taking a unilateral stand by introducing a quasi-corporation tax (that is estimated to raise only £360m a year by 2017/18), without having obtained advance agreement from the UK’s double tax treaty partners, and possibly with the primary aim of seeking to placate a populace wound up by a demagogic Public Accounts Committee, is deeply troubling. A fortiori a quasi-corporation tax that is, at the least, 'vulnerable' to an EU law based challenge.
In November 2014, OECD published a discussion draft that considered the need to update the double tax treaty definition of permanent establishment in order to prevent artificial profit shifting; and the OECD intends to release its report on Base Erosion and Profit Shifting (addressing the shifting of profits of multinational groups to low tax jurisdictions and the exploitation of mismatches between different tax systems) by the end of 2015. A more measured approach would have been to await the conclusion of the OECD's work, particularly as it is in a complex area that is dependent on international consensus. Indeed, the wider changes to the international tax regime that are currently being negotiated by the G20 countries could result in the DPT rules effectively being rendered nugatory shortly after their enactment.
The Autumn Statement provided the headlines for the popular press: "Google tax" and reform of stamp duty. 552 pages of Draft Finance Bill 2015 constitutes the detail. A brief exegesis of the Google tax follows.
Diverted Profits Tax ("DPT") is described by the Government as a new tax designed "to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK." Whilst HMRC will be holding an Open Day on 8 January 2015 to hear views regarding the technical aspects of the draft legislation, it is reasonable to assume that DPT will be introduced by Finance Act 2015. DPT will be applied at a rate of 25% from 1 April 2015. There are 2 circumstances when it will apply:
(i) when businesses "design their activities to avoid creating" a permanent establishment in the UK; or
(ii) where businesses create a tax advantage by using transactions or entities that "lack economic substance".
Small or medium-sized enterprises will not be subject to DPT and there will be an exemption where total sales revenues from all supplies of goods and services to UK customers do not exceed £10 million for a 12 month accounting period.
The process is that a company must notify HMRC if it considers that it is potentially within the scope of DPT within 3 months after the end of the accounting period. The company is not required to quantify the profits that it considers are potentially chargeable to DPT. HMRC may issue a preliminary notice of chargeability within 2 years after the end of the accounting period; the time limit is 4 years if no notification has been made by the company. After a preliminary notice has been issued by HMRC, the company has 30 days to make representations. Whilst the grounds on which representations can be made are unrestricted, HMRC may consider them only if they pertain to certain defined factual matters. Having considered the representations, HMRC must, within 30 days, either issue a charging notice or confirm that no charging notice is to be issued. DPT must be paid within 30 days from the issue of the charging notice. There is no right to postpone the tax.
The DPT administrative process requires a company first to determine whether it may be within the ambit of DPT, and, if so, to notify HMRC of this. It then permits the company to make representations (that could include representations on the company not being within the scope of DPT), but precludes HMRC from considering representations on DPT that do not fall within the prescribed matters. This process stands unhappily in contrast to, for example, the GAAR. There is no provision in Finance Act 2013 (or in the Taxes Management Act 1970) that imposes an obligation on a taxpayer to self-assess under the GAAR. A procedural precondition for the application of the GAAR is an officer of HMRC issuing a notice under paragraph 3, Schedule 42, Finance Act 2013 setting out, inter alia, the proposed counteraction to the tax arrangements that HMRC consider are abusive.
The UK taking a unilateral stand by introducing a quasi-corporation tax (that is estimated to raise only £360m a year by 2017/18), without having obtained advance agreement from the UK’s double tax treaty partners, and possibly with the primary aim of seeking to placate a populace wound up by a demagogic Public Accounts Committee, is deeply troubling. A fortiori a quasi-corporation tax that is, at the least, 'vulnerable' to an EU law based challenge.
In November 2014, OECD published a discussion draft that considered the need to update the double tax treaty definition of permanent establishment in order to prevent artificial profit shifting; and the OECD intends to release its report on Base Erosion and Profit Shifting (addressing the shifting of profits of multinational groups to low tax jurisdictions and the exploitation of mismatches between different tax systems) by the end of 2015. A more measured approach would have been to await the conclusion of the OECD's work, particularly as it is in a complex area that is dependent on international consensus. Indeed, the wider changes to the international tax regime that are currently being negotiated by the G20 countries could result in the DPT rules effectively being rendered nugatory shortly after their enactment.