Search terms: Corporate Tax, United Kingdom
The United Kingdom is free to restrict to an arm's-length amount the deduction for interest paid by a UK company to another member of a group with a parent company in the European Economic Area, provided that certain safeguards are met. This is the view expressed by the advocate general in his non-binding opinion on a case before the European Court of Justice.
The recent opinion issued in the Cadbury Schweppes Case indicates that rules on controlled foreign companies can be compatible with EU law. The approach may mark a move away from the subordination of EU member states' tax laws to the perceived furtherance of the internal market in favour of the evaluation of tax laws in light of the EU Treaty by national courts.
When is a company resident in the United Kingdom and therefore liable to UK tax on its worldwide income? This question must be considered by banks and fund managers in the context of commercial transactions and was recently examined by the Court of Appeal.
The European Court of Justice's decision in the Abbey National Case on the scope of the value added tax exemption for management of special investment funds states that the exemption applies not just to portfolio management services, as the UK government had maintained, but also to tasks specific to the administration of collective investment vehicles.
The 2006 Budget brought headline-grabbing changes - notably the immediate abolition from the stamp duty land tax regime of unit trust seeding relief - a number of anti-avoidance measures triggered by the disclosure regime and some minor adjustments to existing reliefs.
A new, revised version of the draft legislation for UK real estate investment trusts (REITs) seeks to deal with the fundamental taxation problems in the proposed regime. These include the proposed '10%-any-one-shareholder' limit, which may infringe the EC Treaty provisions on free movement of capital, and the special tax charge in cases where the UK REIT's interest cover is less than 2.5.
The government has published the eagerly awaited draft legislation relating to real estate investment trusts (REITs). The proposals outline qualifying conditions for REITs, tax treatment and anti-avoidance measures, but are unlikely to encourage either investment in REITs by overseas investors or investment in overseas properties by UK-resident investors.
The decision of the European Court of Justice in the Marks & Spencer Case confirms that a UK parent company can take group relief for losses of a subsidiary in another EU member state if they cannot be used in the subsidiary's home state. UK companies which are ceasing EU operations may need to consider how best to obtain value for overseas losses by group relief or sale to a third party.
The anti-avoidance measures announced in the Pre-Budget Report 2005 included new regulations on corporate capital losses and intangible assets. Other developments included changes to research and development tax credits, the taxation of leased plant and machinery and charges and allowances for North Sea oil and gas companies.
New draft legislation may have significant consequences for life insurance companies. Companies with an investment reserve in a fund or sub-fund with little or no with-profits business may find that the entire reserve will be taxable in the present accounting period. Companies carrying on business which was previously mutual may be affected if unallocated surplus is derived from that business.
The advocate general has given his opinion in the Halifax Case. The good news for the taxpayer lies in the subtle distinction made between, essentially, subjective and objective intention. The advocate general's focus on objective intention reaffirms the long-established position that a taxpayer's personal motive is irrelevant to a proper value added tax analysis.
The opinion of the advocate general in the M&S Case, which was recently released, will be of great comfort to UK parent companies with EU subsidiaries that have already incurred losses, and may encourage them to make group relief claims for those losses, so minimizing the risk of losing the benefit, on account of time limits imposed by the European Court of Justice on its decision.
Although comparatively light from a technical tax perspective, the 2005 Budget has ramifications for a range of industries, including oil and real estate. Moreover, the Budget takes a firm stance in introducing anti-avoidance legislation to counter 'highly contrived' schemes or arrangements that give rise to excessive double taxation relief claims.
The House of Lords has issued two significant decisions on the judicial approach to construction of taxing statutes. Among other things, the decisions confirm that purposive construction must be applied, facts may not be disregarded, a statute cannot be judicially altered, and circularity which cancels the commercial concept on which the statute is based is offensive.
Under rules which came into effect on September 30 2004, promoters and in some cases users of tax-planning arrangements involving certain financial products or relating to employment must notify details of the arrangements to the Inland Revenue.
A recent decision provides guidance on what documents may be requested by the Inland Revenue in a notice to produce documents given pursuant to paragraph 27, Schedule 18 of the Finance Act 1998. In particular, a notice may require the taxpayer to provide information relating to other members of its group.
The special commissioners have referred to the European Court of Justice the question of the compatibility of the UK’s controlled foreign company (CFC) regime with EU law. Under the CFC rules, a UK resident company can be taxed in the United Kingdom on the profits of a non-UK resident subsidiary whose profits are subject to a “lower level of taxation”.
The High Court has held that the compensation which the Inland Revenue must pay to companies wrongly prevented from paying dividends under a group income election should be compound interest on the advance corporation tax wrongly paid, for the period between payment of the advance corporation tax and utilization of the advance corporation tax against mainstream corporation tax.
The Court of Appeal’s decision in Veltema v Langham has been the cause of major concern for tax practitioners in all fields. The decision defines in a very broad fashion the circumstances in which the Inland Revenue is entitled to make a 'discovery' assessment into a taxpayer’s self-assessment return after the normal one-year period for enquiry has elapsed.
A tough approach towards tax avoidance is the dominant feature of the Finance Bill 2004. Promoters and users of certain UK tax and value added tax (VAT) avoidance arrangements will be obliged to disclose details of the arrangements to the UK tax authorities. A number of specific anti-avoidance measures relating to partnerships, leasing and VAT have also been introduced.
UK Customs & Excise has published proposals to narrow the criteria for value added tax (VAT) group treatment. The proposed changes are stated to be aimed at outsourcing structures used by VAT partially exempt finance and insurance groups to obtain services VAT free, but will have the effect of removing VAT grouping in many joint venture situations.
The chancellor of the exchequer published his pre-budget report in December 2003. Key announcements for corporates are draft legislation repealing the current thin capitalization rules and extending the transfer pricing rules to UK domestic transactions, consultation on a tax-transparent real estate investment trust and significant changes to the value added tax grouping rules.
Stamp duty land tax (SDLT) replaced stamp duty on land on December 1 2003. SDLT applies to a broader range of transactions than stamp duty and introduces a radically altered compliance regime. The SDLT charge on the rent element of new leases has earned the most publicity, as it is significantly higher than the charge under the stamp duty rules.
Reversing a High Court decision, the Court of Appeal recently held that the distribution element of the consideration for the buyback of shares by a UK company from a UK corporation tax-paying shareholder forms part of the disposal proceeds for calculating the chargeable gain made by the shareholder on the buyback.
Companies which have overpaid tax due to a generally held but mistaken view of the effect of UK tax law may be prevented from seeking compensation for the full amount of their loss. This is the effect of draft legislation which has just been published. The move is particularly topical for multinational groups considering seeking compensation for UK tax law breaching EU law.
In a further consultation document published recently, the Inland Revenue filled out some more of the details of its wide-ranging proposals to reform UK corporation tax. The changes would affect all UK companies, particularly those in the real estate, life insurance, finance leasing and utilities sectors.
There has been some concern that new provisions relating to 'employment-related restricted securities' will result in fund managers participating in a limited partnership suffering a 40% income tax charge when they acquire a carried interest in the limited partnership assets. A new memorandum of understanding clarifies that carried interests will generally continue to be free of income tax.
The High Court has clarified that companies can deduct upfront the professional fees associated with preparing an abortive bid for another company. The decision contradicts the Inland Revenue's position that there is no tax relief for the costs of an abortive bid. The case may also apply to similar costs incurred in relation to the acquisition of other investments.
The chancellor of the exchequer announced the Budget on April 9 2003. As expected, a number of anti-avoidance provisions have been introduced. They include changes to the stamp duty group relief and acquisition relief clawback rules, and measures to prevent individuals from exploiting the 100% capital allowances rate available for expenditure on information and communications technology.
The Inland Revenue special commissioners recently decided a case concerning the application of the UK controlled foreign companies legislation in the context of two captive insurance companies. It is the first reported decision on the defence to apportionment set out in Section 748(3) of the Income and Corporation Taxes Act 1988, which is known as the 'motive test'.
The European Council of Ministers has reached political agreement on the Savings Tax Directive. The agreement has caused some concern in the UK bond market over the impact that the directive could have on gross-up provisions, and specifically whether it could trigger the tax call, enabling an issuer to call in the bonds if it would otherwise have to make a gross-up payment.
A recent High Court decision overturns Inland Revenue practice and offers significant tax benefits to corporation tax-paying investors on share buy-backs. However, the Inland Revenue may appeal the decision or seek to reverse its effect by attempting to introduce new legislation.
A recent decision of the European Court of Justice concerning the German thin capitalization rules has implications for the United Kingdom. Because the court's decisions are binding throughout the European Union and are not appealable, there appear to be two ways forward for the United Kingdom (and other member states) wishing to keep anti-thin capitalization restrictions in place.
The chancellor of the exchequer recently delivered his Pre-Budget Report. The report focuses on tightening up existing rules, as well as introducing a number of anti-avoidance provisions. There are also a number of provisions in relation to environmental matters, with the promise of more to come.
Recent government proposals aim to iron out a disparity of tax treatment between UK branches and UK subsidiaries. The proposals will have the greatest impact in the banking sector, which has criticized them as overly broad. The banking industry also argues that the speed with which the proposals are to be introduced has left little time for consultation.
Companies resident in Ireland are no longer automatically excluded from the United Kingdom's controlled foreign companies (CFC) charge for accounting periods beginning on or after October 11 2002. This affects UK companies which rely on Ireland featuring on the United Kingdom's 'excluded countries' list in order to avoid a CFC charge in relation to their interest in an Irish company.
A government consultation document proposes that returns on capital assets be taxed as income in accordance with the accounting treatment, and that the schedular system of income taxation be rationalized. It also addresses the distinctions in tax treatment between trading and investment companies.