The International Tax Round Autumn 2021

The autumn edition of The International Tax Round is here! As always, in this edition International Tax Partner, Sonal Shah provides key insight into the latest tax changes impacting businesses and individuals both in the UK and internationally.

Editor’s message

With summer only faintly peering its sun rays through the clouds and autumn on its way in, it’s life, but not quite as we know it.

Most legal Covid-19 restrictions have now come to an end in England, with Scotland and Wales also relaxing their own lockdown rules. But with cases of the virus showing no sign of subsiding, questions still remain over some crucial issues, including vaccine passports, foreign travel, and face masks. However, hospitality is finally seeing signs of recovery, and other industry sectors showing signs of growth, including travel, things seem to be moving in the right direction.

As I write this, I am sitting on the beach in Cornwall eating a Cornish pasty – fact I didn’t know – the pasties were invented by the miners to keep their stomach full and heart happy. I’m feeling exactly that right now!

I have been doing a lot of reading on Crypto. Believe it or not, the adoption rate is faster than the internet in the mid-’90s and yet only circa 1.5% of the world’s population invest in Crypto; and even fewer understand it. Are we missing something here? The tax landscape on cryptocurrency is relatively untested. It will be interesting to see how HMRC, world governments, and the political landscape react to this.

But for now, the next stop is Cornish cream tea – and more importantly, is it cream or jam first?

I love the fact the Cornwall has a motto too which is Onen Hag oll (one and all). On that note, happy reading one and all!

In this autumn edition of the International Tax Round, we have handpicked a selection of the latest tax news, insights, and updates that we hope will be of great interest which includes:

• Digital platforms to report seller’s trading internationally
• Do you need to register for VAT in the EU?
• 132 countries agree to a minimum rate of corporation tax
• Five tips on being non-domiciled
• Scrutiny over Amazon’s Luxembourg-based subsidiary

Digital platforms to report seller’s trading internationally

On 30th July, the UK’s tax authority (HMRC) opened a consultation on rules to require digital platforms (websites, apps, and the like) to report to HMRC information relating to the income of sellers operating on their platforms.  These rules will implement the OECD’s model rules on digital platform reporting that were published last year, whereby the income of individuals or companies selling goods or providing services will be reported to the tax authority where the platform is resident, incorporated, or managed. This information will then be sent to the tax authority where the seller is a resident.

The UK is one of the first countries to opt into adopting the OECD model reporting rules for digital platforms.

The rules will stipulate how the information is to be reported and will be used to help taxpayers get their tax right.  HMRC is of the view that in some cases, sellers of goods and services may not get their tax right. This could be due to sellers failing to understand their tax obligations, not keeping track of income across multiple different platforms, or a conscious decision not to tell the tax authorities about their taxable income.

HMRC further plans to adopt the optional extended scope published by the OECD earlier this year.  This extends the scope beyond personal services (e.g., Uber) and property rentals (e.g., Airbnb) to also include the sales of certain goods and the rental of means of transportation.  Large providers of hotel accommodation, as well as “occasional sellers” (annual sales of goods less than 30 totalling less than €2,000), will be exempt.  Platforms facilitating less than €1 million of annual sales will also be exempt.

The consultation period ends on 22nd October 2021 and the rules are expected to come into force not earlier than January 2023.

Do you need to register for VAT in the EU?

One rarely considered prospect, when the UK left the EU, was the additional requirement for some businesses to register for VAT somewhere in the EU or the UK, particularly for B2C online sellers.

VAT in the EU (and elsewhere) is moving to a destination basis so VAT is due in the country where the customer is. If you sell goods online to EU customers you may now have to register for the EU-wide Import One Stop Shop (IOSS), if the consignments are less than €150 and all your goods are sent from outside the EU.

There is no VAT threshold for non-resident entities who trade in either the EU or the UK and this will affect EU online sellers supplying UK customers as they will also need to register for VAT in the UK.

It’s not just B2C sellers; where goods are held in the EU and sold to businesses (and private individuals) within the EU the seller will have to register for VAT in the country of despatch.  Goods moving from one EU country to another can only be VAT free with an intra-EU ID operator number (VAT number registered with VIES). Many UK companies are now required to register for VAT, as a non-resident company, somewhere in the EU.

There is no VAT threshold for non-resident entities who trade in either the EU or the UK so these additional VAT registrations will only increase along with compliance costs.

132 countries agree to minimum rate of corporation tax

The OECD has confirmed that 132 of the Inclusive Framework’s 139 countries and jurisdictions which represents more than 95% of global GDP have joined a new two-pillar plan and agree to accept a global minimum corporation tax rate of 15%.

The two-pillar package aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits while adding much-needed certainty and stability to the international tax system.

Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.

Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.  The OECD hopes to finalise the Framework for the agreement by the autumn, with implementation in 2023.

Further details of HM Treasury can be found here.

Five tips on being non-domiciled

The non-dom status for UK tax residents is highly valued. Being non-domiciled, you can avoid Income Tax and Capital Gains Tax on your foreign income and gains by simply not bringing the funds into the UK. You can also avoid Inheritance Tax on your non-UK assets.

In brief, if you come to live in the UK from another country, you will be most likely considered as UK non-dom, especially in your early years of UK residence. This is provided you were not born in the UK with a UK domicile of origin.

Domicile is where you consider your permanent home to be in comparison to residence, which is dependent on the number of days you spend in a country each year. Domicile is more of a long-term concept. You lived there for much of your life, you still live there, and you plan to continue to live there indefinitely.

In the UK, you can also be deemed domiciled by virtue of having lived here for more than 15 out of the last 20 years.

Whilst living in the UK, you can take advantage of this tax break. Although you can benefit by spending your foreign income and gains outside of the UK and keeping your non-UK assets outside of the UK, how do you maintain your non-domiciled status as HMRC may decide that you are now here to remain indefinitely?

Here below we set out five different ways to enhance the retention of your UK non-dom status:

1. Maintain personal links with Country Z. This may include:
2. Maintain business links in Country Z
3. Having investments in Country Z
4. Demonstrate clear intentions to return to Country Z
5. Demonstrate clear intentions to leave the UK

The most important thing to remember when considering the above is to be able to show HMRC if needed, that the intentions are backed by demonstrable actions and are not just paying ‘lip service’.

Read the full article here.

Scrutiny over Amazon’s Luxembourg-based subsidiary

Accounts for Amazon EU Sarl, through which it sells products to hundreds of millions of households in the UK and across Europe, show that despite collecting record income, the Luxembourg unit made a €1.2bn loss and therefore paid no tax.

In fact, the unit was granted €56m in tax credits it can use to offset any future tax bills should it turn a profit. The company has €2.7bn worth of carried forward losses stored up, which can be used against any tax payable on future profits.

The Fair Tax Foundation said this meant Amazon’s effective tax rate was 12.7% over the decade when the headline tax rate in the US had been 35% for most of that period.

The Commission did not prove that Amazon had secured an “undue reduction” in its tax base, according to a May 12 ruling by the European General Court. As a result, the court found that there was “no selective advantage” in favour of Amazon’s Luxembourg-based subsidiary.