The International Tax Round Summer 2023
07 Jun 2023
The International Tax Round Spring 2023
08 Mar 2023
The Register of Overseas Entities and the impact on property transactions
13 Feb 2023
Trust structures holding UK real estate - an update on the Register of Overseas Entities and reporting requirements
18 Jan 2023
How IDnow catapulted its growth from a start up to a leading identity proofing platform provider
14 Dec 2022
We are pleased to bring you the Spring edition of The International Tax Round. 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.
With longer days and lighter evening skies gradually emerging, there’s a cautious sense of optimism in the spring air. As we shun our scarves and facemasks (with consideration, of course) I can’t help but wonder what we can put behind us, and what is here to stay.
Many of us are returning more confidently to offices but are we really returning to the same place we hastily left two years ago? The pandemic globally disrupted our way of working, forcing the biggest reset known in recent times. With workforces around the world getting more than just a taste of flexible working, it’s unlikely that we’ll see the hybrid working model shelved. Businesses will be working hard to find a sustainable arrangement which suits both themselves and their employees.
On the topic of cautious optimism, the UK economy bounced back from the pandemic better than expected. In January 0.7% growth was reported since pre-Covid, suggesting a bright outlook for new businesses and despite the Omicron variant throwing a spanner in the works, economists predict its impact will be softer than that of previous Covid waves. Rapidly rising prices and the blows to disposable income do however warrant uncertainty so there remains a lot to be seen.
Perhaps one of the biggest glimmers of hope is the easing of travel restrictions. With borders opening up, I find myself fishing out my passport and dusting off the suitcase, after more than two years on home turf. My first post-Covid business trip will take me to my “home away from home” - South Africa - followed by a trip to explore what I hear is one of Africa’s best kept secrets – Botswana.
Technology did a remarkable job at filling voids over the last two years, and I’m certain it will play a big part in my working life going forward, but I can't deny the excitement of physically reconnecting with my peers overseas. Whether it’s clinking a glass of wine, sharing a laugh or exploring incredible new places, there’s a lot to look forward to. As we weigh up what to pick up and what to leave behind, hopefully there is enough to put a long-awaited spring back in our steps.
In this Spring edition of the International Tax Round, I have handpicked a selection of what I would deem as the most interesting tax news, insights, and updates that we hope that you will enjoy reading. These include:
- UK sets out approach to global minimum tax implementation
- Temporary non-residence: The anti-avoidance rules
- The Pandora Papers - Five months on
- UK VAT and International Services
- UK Property tax: Proposed new UK residential property developer tax
For further guidance on any of the topics covered in this newsletter, contact Sonal Shah or our International Tax team using the details below.
UK sets out approach to global minimum tax implementation
The UK government on 11 January 2022 opened a consultation on how it plans to implement and administer within the UK the OECD model rules on the internationally agreed 15% global minimum tax. The consultation also considers the introduction of a UK domestic minimum tax, as well as potential broader amendments to base erosion and profit shifting (BEPS) measures.
In the consultation document, the government describes how it proposes to translate provisions relating to the application of the minimum tax’s global anti-base erosion (GloBE) rules, the calculation of effective tax rate, reporting and payment, and other issues.
The consultation will provide for a consistent implementation to the rules to avoid double-taxation or double non-taxation where different countries employ different rules. The consultation will also seek views on any strong reasons why the UK legislation should not as closely as possible follow OECD model rules along with any other questions.
The consultation is open until 4 April 2022, running concurrently with OECD work on the commentary to the model rules that were released last month. Following the consultation, the UK government plans to issue draft legislation in the summer.
GloBE rules application:
The government states that it expects that in most cases the top-up tax attributable to UK multinational groups with respect to foreign entities in low-tax jurisdictions will be charged to the ultimate parent entity in the UK under the income inclusion rule. Once the income inclusion rule is introduced in the UK, UK-based groups will not be subject to the undertaxed payments rule, which foreign jurisdictions might otherwise charge to other group entities if top-up tax was not collected under the income inclusion rule.
Temporary non-residence: the anti-avoidance rules
Anyone returning to the UK after a period of absence should consider whether the temporary non-residence (TNR) anti-avoidance provisions apply.
The TNR anti-avoidance rules prevent a formerly UK-resident individual taxpayer from taking advantage of a short period of non-residence to realise income or gains outside the UK and, as a result, escape UK taxation on the receipt. These rules are most commonly seen in the context of capital gains tax, but they also apply to certain receipts subject to income tax. The scenarios are wide-ranging and include, for example, close company distributions, chargeable event gains and lump-sum pension distributions.
You will be regarded as temporarily non-resident if:
- following a period when you were solely UK resident, periods occur where you do not have sole UK residence;
- in four of the seven tax years before your year of departure you had either a sole residence in the UK or the year was a split year in part, of which you had a sole UK residence; and
- your period of non-residence is five years or less. ‘Years’ in this context mean ‘periods of 12 months’, not tax years.
This is just a small element of the TNR rules. Tax residence planning is essential and therefore please do consult with us should you be considering a temporary move.
The Pandora Papers - Five months on
On 3 October 2021, the International Consortium of Investigative Journalists (ICIJ) released the largest expose yet of the offshore activities of world leaders, sports people, celebrities and others.
So how much has Pandora changed the global fiscal landscape? Well, within a week of the publication of Pandora, the party of the Czech prime minister, who was named in the Pandora, was unexpectedly defeated in a general election barely a week later. However, two other world leaders named in Pandora, the presidents of Chile and Ecuador, both avoided impeachment in their respective parliaments. The US Congress and EU Parliament have talked about the Pandora, and then talked some more. The UK, which for several years has promised a register of beneficial owners of UK properties, still promises and pays lip service to attacking the offshore industry. The present British prime minster is seemingly disengaged on Pandora, and indeed a former British Prime Minister is named in Pandora (according to multiple reports for a completely legal property transaction which saved over £300,000 in property transfer duty by purchasing it via an offshore vehicle), the ICIJ meanwhile continue to do their best to keep Pandora in the limelight amidst a cooling off of the issues in the global media. Even the Panamanian courts in bringing a prosecution against top executives of the law firm named in the Panama Papers nearly 6 years ago, are struggling against various legal hurdles.
Meanwhile, in a parallel action, the OECD has managed to make significant inroads in its attack on profit shifting. Near on 140 countries have signed up to the new 15% global minimum corporation tax initiative.
After much talk in the weeks after the Pandora leaks, has the ICIJ effort, (and it certainly was a major effort), run out of steam? Are governments too occupied with the pandemic and putting their economies back on track to concern themselves with the fallout from Pandora? Time will tell. Meanwhile the global offshore finance industry apparently continues to flourish.
UK VAT and International Services
The issues relating to the import and export of goods between the UK and the EU seems to have settled down. While trade between the two has reduced over the last 14 months or so, it’s hard to determine how much of that is directly related to Brexit and how much is impacted due to COVID. It does seem like shipping agents and businesses are getting used to the new border and the consequence of additional paperwork.
Work on goods is an area that has radically changed since 2020. For example, a car sent to the UK from the EU for certain works to be carried out will be classed as an import. Assuming the car is re-exported, all taxes can be suspended. In addition, whereas before 2021, VAT would be due on work carried out for an EU customer, now that work is treated as an international service and as such will be zero rated.
It is worth checking that if work is being carried out on any goods temporarily imported into the UK, import VAT and duty will not apply and the service itself should not carry VAT.
There are a lot of quirks in the world of VAT and this is just one of them.
UK property tax: Proposed new UK residential property developer tax
The UK government has proposed a new Residential Property Developer tax (RPDT) which will take effect from 1 April 2022. This essentially has the objective of requiring residential property developers to pay additional tax to fund the cost of remediating cladding issues which has been and will be borne by the government.
RPDT will apply to profits arising from the development of residential property only when the land/property is held as trading stock by the developer or a related entity. Property investors (now specifically including those using a build-to-rent model) are excluded.
The new tax will apply to companies only, although there is no restriction on the residence of the company.
The tax rate applied will be 4% on profits above a £25million annual allowance.
The key point to note is that is that smaller businesses are likely to fall below the suggested annual allowance and in turn are unlikely to be subject to RPDT, but it seems that RPDT appears to go further and cover more activities than simply developing residential property.
There are still a few concerns regarding the impact the RPDT will have on delivering residential development, affordable homes and sustainability standards.
If you require any assistance or more information, please feel free to get in touch with our International tax team today.