On March 24, 2016, the UK published Finance (No.2) Bill 2016 (the “Bill”), introducing measures to tackle multinational tax avoidance, including:
- Anti-avoidance rules with respect to intellectual property (IP), hybrid mismatch arrangements, transfer pricing, VAT, and state aid.
- Civil and criminal penalties for tax avoidance.
Clause 40 amends the rules in Part 15 of the Income Tax Act (ITA) 2007 on the deduction of income tax from payments of royalties by inserting new section 917A. This measure addresses arrangements that seek to avoid the duty to deduct income tax at source from a payment of royalties through the abuse of tax treaties, where the payment is made to a person connected with the payer.
Clause 48 clarifies the rules for intangible fixed assets in Part 8 of the Corporation Tax Act 2009 (CTA 2009), confirming that partnerships or Limited Liability Partnerships (LLPs) cannot be used to move assets in ways that were not intended by the legislation. Clause 49 confirms that transfers of assets between LLPs, in respect of which the participation condition is satisfied, are adjusted to reflect market value.
Clause 60 amends the Patent Box legislation in Part 9 of CTA 2010. The Patent Box provides a reduced rate of corporation tax on profits from patents and similar IP. The changes will ensure compliance with the BEPS Action 4 recommendations. The amended rules in new Chapters 2A and 2B of Part 9 will require profit to be calculated at the level of an IP asset or a product/product family relying on an IP asset. The profit will be adjusted to reflect the proportion of the development activity on the asset (or product/product category). The measure will have effect for “new entrant” companies to the Patent Box on or after July 1, 2016, and also for some IP assets acquired on or after January 2, 2016. The new rules are being phased in, with the current Patent Box rules applying to some companies and IP during a transitional period lasting until 2021. The new rules will apply to all companies and IP after 2021.
Hybrid Mismatch Arrangements
Clause 62 discusses arrangements resulting in a deduction for payments where there is no corresponding inclusion in ordinary income, or in double deductions from ordinary income. From January 1, 2017, new hybrid mismatch rules addressing these situations will replace the existing anti-arbitrage rules in Part 6 of Taxation (International and Other Provisions) Act 2010.
Transfer Pricing Guidelines
Clause 71 updates the definition of “transfer pricing guidelines” in the UK’s transfer pricing legislation. It would update the definition of “transfer pricing guidelines” in the UK’s transfer pricing legislation to incorporate the OECD BEPS Actions 8 through 10 final recommendations for accounting periods beginning on or after April 1, 2016
Clause 113 addresses joint and several liability of operators of online marketplaces. These new provisions support the Government’s policy of tackling online fraud and creating a level and fair playing field for businesses selling goods online.
Clause 168 will allow HM Revenue and Customs (HMRC) to collect information on state aid, to monitor and evaluate state aid tax relief and other tax advantages, and share information.
Clause 150 introduces new civil penalties for “deliberate enablers” of offshore tax evasion or other non-compliance, including a new financial penalty. The penalties are applicable in relation to income tax, capital gains tax and inheritance tax.
Clause 151 increases minimum penalties, with respect to offshore transfers, for inaccuracies, failure to notify a charge to tax or failure to deliver a return where the transfers were deliberate or deliberate and concealed.
Clause 153 introduces a new asset-based penalty for offshore tax evasion, and is based on the value of the asset. The penalty will only apply for purposes of income tax, capital gains tax and inheritance tax. It applies where there is an inaccuracy in a document, failure to notify or failure to submit a return. The behavior that led to the penalty has to be deliberate, or deliberate and concealed, and the tax or liability underpaid or understated exceeds a threshold amount.
Clause 154 introduces a new criminal offence, which does not require the need to prove intent for failing to declare taxable offshore income and gains, through an amendment to the Taxes Management Act 1970 (TMA). The offences will apply for purposes of income tax and capital gains tax, where a person has failed to properly declare offshore income or gains in accordance with sections 7 and 8 of the TMA, leading to a loss of tax exceeding a threshold amount. The provisions will come into force following a commencement order.
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