The International Tax Round Summer 2021

As previously mentioned, non-UK residents are now subject to the Non-Resident 2% SDLT surcharge when purchasing a residential property in England.

The Stamp Duty Land Tax (SDLT) Charge for Non-Residents – Non-UK resident test

Non-UK residents are now subject to the Non Resident 2% SDLT surcharge when purchasing a residential property in England and Northern Ireland from 1 April 2021.

Who Qualifies as a Non-UK Resident?

Individuals

The SDLT surcharge test states that an individual is UK resident if that individual is present in the UK on at least 183 days during any continuous period that:

• Begins with the day 364 days before the effective date of the chargeable transaction, and
• Ends with the day 365 days after the effective date of the chargeable transaction.

Therefore, there is a two-year window during which the 183- day test can be met.

Companies

A non-resident company will be liable for the 2% surcharge if on the effective date of the chargeable transfer:

• The company is not UK resident for UK corporation tax purposes, or
• The company is subject to UK corporation tax but it is a ‘close company’ which is controlled by one or more persons who

are not UK resident (using the above SDLT test for residency) unless exemptions apply.
All those investing in UK residential property should consider their residence status under these rules – which may be different to their residence status for other UK tax purposes.

The battle for digital taxing rights

The UN has recently agreed the text of a new article and commentary for the UN model tax treaty that would grant additional taxing rights to countries where an automated digital services provider’s customers are located.

The new taxing rights would apply to income from automated services, namely, income received with little human involvement from the service provider. It would apply to income derived from online advertising services, the supply of user data, online search engines, online intermediation platform services, social media platforms, digital content services, online gaming, cloud computing services, or standardized online teaching services.

The model treaty provisions would allow source countries to apply a withholding tax on gross payments made in exchange for the specified automated digital service. Alternatively, companies can elect for the withheld amount to be based on profits earned in the source country from the automated digital service.

This is both an alternative to the OECD-led work on a digital tax, as well as of course a counter to the numerous countries, like the UK, that are “going solo” on their own digital tax regimes. It could be a question of who blinks first.

HMRC updates NICs guidance for EU workers

HMRC has updated its guidance notes on social security contributions and national insurance contributions for workers coming to the UK from the EEA or Switzerland, to reflect that the multi-state workers rules and the detached worker rules are to remain broadly the same.

As part of the trade and co-operation agreement made between the UK and EU on 24 December 2020, the UK and EU agreed that they would continue the social security coordination arrangements between them. The agreement provides for the existing short-term assignment rule to continue (also known as the detached worker rules). This allows workers to move between the UK and those EU member states which choose to opt-in to the detached worker rules.

The guidance confirms that UK employers sending an employee to work temporarily in the EU (for up to two years) should apply to HMRC for certification so that UK NICs can continue to be paid in the UK. Likewise, UK employers bringing an EU-based employee to the UK to work temporarily should ensure that the employee obtains a certificate from their home EU member state so that social security contributions can continue to be paid in that home member state.

Similarly, the rules for multi-state workers confirms retaining the need to determine where someone is habitually resident and where they perform substantive work duties.

EU’s tax transparency bill

On 4 March 2021, the European Parliament confirmed that it expected negotiations to start very soon with Portugal’s EU Presidency on a new EU directive to make multinationals publish information on where they make profits and pay taxes.

According to the proposal, public scrutiny of corporate income taxes borne by multinational companies operating in the Union needs to be strengthened, as this is essential in furthering transparency and corporate responsibility. The proposal will focus on the requirement by large multinational companies to publish country-by-country information on where real activity is taking place and hence where the profits are being made.

There are concerns that the bill could be watered down. Limiting the number of countries covered by the bill would mean partial country-by-country report, and it would leave huge black areas on the map. Having said that, this is a significant first step towards greater corporate tax transparency. Watch this space!

Could there be a tax on robots?

Bill Gates has argued that the best way to slow down the speed of automation so that society can cope with the transition is a robot tax. He foresees that the proceeds of a robot tax would go towards improving education through smaller class sizes, “reaching out to the elderly” and helping people with disabilities; all jobs that require human empathy.

On 6 August 2017, South Korea introduced the first robot tax. Korea has been very quick to adopt robots in the workplace, particularly in the manufacturing industry, which is led by robot-produced semiconductors. Another factor that is hurrying Korea along is that its unemployment rate has hit a 17-year high, with 1.7 million unemployed. However, the tax itself isn’t exactly the tax on individual robots that Gates envisaged; instead Korea is changing the corporate tax code to provide disincentives for capital investments in technology.

In fact, it isn’t really a robot tax at all, but an economic recognition that Korea’s automation is advancing at such an extent that mass unemployment may be round the corner.

A robot tax is essentially the concept that companies replacing employees with automated workers should be required to pay a tax.

Proceeds raised by a robot tax can then be diverted to the displaced workforce, for example in the form of reskilling or retraining programmes.

Could this be on the horizon?

If you have any questions about anything covered in this newsletter, contact one of our International Tax advisors today.