Weekly Tax Matters KPMG LLP (UK) 17 October 2014
Weekly Tax Matters KPMG LLP (UK) 17 October 2014 contents TAX POLICY • • • Draft clauses for Finance Bill 2015 Competitiveness of the UK Tax System – OTS Review EU agrees laws to automatically exchange bank account information FINANCIAL SERVICES • HMRC FATCA online service launched INDIRECT TAX • • • • HMRC Brief 37/14 - VAT grouping rules – HMRC position post Skandia (C-7/13) Traum (C-492/13) CJEU Judgment The University of Huddersfield – Upper Tribunal decision Brief 35/14: Lok'nStore Group PLC decision on calculating deductible VAT EMPLOYMENT TAX • • Extension announced to the Travel and Subsistence Review New Joint British-Irish Visa Scheme Announced INTERNATIONAL STORIES • International round up © 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. contents OTHER NEWS IN BRIEF © 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. TAX POLICY DRAFT CLAUSES FOR FINANCE BILL 2015 The Government has announced that draft clauses for inclusion in Finance Bill 2015 will be published on 10 December. Chris Morgan +44 (0)20 7694 1714 [email protected] The Government has announced that draft clauses for inclusion in next year’s Finance Bill will be published for comment on Wednesday 10 December. This is a week after this year’s Autumn Statement, which will take place at 12.30 on Wednesday 3 December. KPMG in the UK will be producing a summary of any tax announcements in the Autumn Statement as well as our usual detailed look at the key points in the draft Finance Bill clauses. We will also be holding an employment taxes Breakfast Seminar in our Canada Square office on Monday 15 December. Look out for more detail on all of these over the coming weeks. Some of our other articles this week also have an Autumn Statement flavour. The final report of the OTS review of the competitiveness of the UK tax administration has been released (see article below), and it is possible that the Chancellor will give some indication in the Autumn Statement as to which recommendations are likely to be taken up by Government. The OTS’s suggestion of the harmonisation of income tax and NICs has been mirrored by a policy paper from the Centre for Policy Studies. The coming weeks are likely to see more of these suggestions for the Chancellor: which of them (if any) he will choose to take up, though, will be a different story. One item where we may not now see further announcements is the ongoing Travel and Subsistence Review (a suggestion taken forward from a previous OTS report). The deadline for the first phase of the review (previously 23 October) has been extended to January 2015, giving valuable additional time for discussion on the complexities. More detail can be found in the Employment Taxes section below. © 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 1 COMPETITIVENESS OF THE UK TAX SYSTEM – OTS REVIEW The Office of Tax Simplification has published the final report in its Review of the Competitiveness of the UK Tax System. Chris Morgan +44 (0)20 7694 1714 [email protected] The Office of Tax Simplification (OTS) has published its final report on its Review of the Competitiveness of the UK Tax System. The review, announced at last year’s Autumn Statement, has focused on how the UK might improve the competitiveness of its tax administration system, with particular reference to the World Bank’s “Paying Taxes” survey. The OTS report concludes that “the UK undoubtedly has a competitive tax system” which “results in a creditable 14th place in the [World Bank survey]”. In order to improve, the OTS believes that “major changes are needed”. This belief underpins the recommendations made in the report: as it itself notes: “Because we include a range of major ideas, we are aware that it may be said that we have exceeded our terms of reference and strayed into policy areas”. The report is long (over 100 pages) and includes many specific recommendations. Some of the more significant are: That the rules around the calculation of income and corporation tax are reviewed, giving particular consideration to the possibilities of closer alignment of tax and accounting profits, replacing the current capital allowances system with one of allowable depreciation and the partial abolition of chargeable gains for companies. The existing debt cap and transfer pricing rules should be reviewed, as should Real Time Information processes; The Short Term Business Visitor rules should be extended; and More use should be made of “digital communication channels” to help businesses. More detail on the proposals around employment taxes can be found on KPMG in the UK’s Employers’ Club site (registration required). The foreword to the report notes that many of the suggested changes are “small in nature” and may be implemented “relatively quickly”. Some, though, such as the proposals around income tax and NIC and capital allowances, would involve major change to the current tax system and may not align with Government policy. The OTS acknowledges that these changes would require “time and much discussion” and would perhaps sit well as the basis of a “future road map for tax reform”. Readers should remember that the OTS report does not have the status of Government policy – we may find out more in the Autumn Statement about how willing the Chancellor is to take these proposals forward. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 2 EU AGREES LAWS TO AUTOMATICALLY EXCHANGE BANK ACCOUNT INFORMATION All forms of financial income, including capital gains and dividends, plus account balances, will be disclosed and exchanged between jurisdictions. EU finance ministers have agreed laws to automatically exchange account information between member countries, representing an important step towards ending banking secrecy in Europe. The legislation had been blocked for more than six years but was finalised on 14 October 2014 after Luxembourg and Austria agreed to lift their vetoes. Each of the 28 member countries will be required to disclose assets held by foreign EU nationals in their financial institutions. The information to be exchanged will include details of dividends, capital gains and all other forms of financial income as well as account balances. 27 of the 28 member countries have agreed to implement the data exchange in 2017, whilst Austria have requested an extension to 2018 to allow time for new reporting systems to be built. Derek Scott +44 (0)20 7311 2618 [email protected] Peter Grant +44 (0)20 7694 2296 “This [measure] promises full and lasting tax transparency in Europe,” said Algirdas Semeta, the outgoing EU tax commissioner. “Bank secrecy is dead.” [email protected] Mr Semeta also said he believes the EU could sign bilateral deals with other European jurisdictions outside the EU such as Monaco, Switzerland and Liechtenstein by the end of the year. This is the latest step in the global shift towards the automatic exchange of financial information. Further announcements are expected at the meeting of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes to be held in Berlin on 28-29 October 2014. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 3 FINANCIAL SERVICES HMRC FATCA ON-LINE SERVICE LAUNCHED HMRC has launched an online service for UK financial institutions to register and report financial information on behalf of their US customers. Peter Grant +44 (0)20 7694 2296 [email protected] On 13 October 2014, HM Revenue & Customs (HMRC) launched a new on-line service for UK financial institutions for the reporting of information under the US Foreign Account Tax Compliance Act (FATCA). The UK signed an intergovernmental agreement (IGA) with the US in September 2012 which reduces some of the administrative burden of complying with the US FATCA regulations, and provides a mechanism for UK financial institutions (which for FATCA includes certain trusts and personal investment companies) to comply with their obligations without breaching data protection laws. The new service enables users who need to comply with the requirements of the IGA to register with HMRC (using an existing Government Gateway Account if applicable) and enrol for the FATCA online service. FATCA Returns will need to be submitted each year by 31 May with the first return due by 31 May 2015. Further details will be provided in a future edition of Weekly Tax Matters about how KPMG in the UK can help with this new compliance process. Jeanette Cook +44 (0)117 905 4277 [email protected] © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 4 INDIRECT TAX HMRC BRIEF 37/14 - VAT GROUPING RULES – HMRC POSITION POST SKANDIA (C-7/13) HMRC have issued a Brief following the CJEU Judgment in Skandia (C-7/13). Steve Powell HM Revenue & Customs (HMRC) have issued a Brief following the CJEU Judgment in Skandia (C-7/13).To access the Brief click here. This is essentially a holding Brief, noting that the UK VAT grouping rules differ from the Swedish VAT grouping rules and that the judgment did not consider: what the position under the UK rules should be; and whether the Swedish rules were the only permissible VAT grouping rules. HMRC added that they are carefully considering the Judgment and will provide a further update in due course. In the meantime, businesses should continue to follow existing guidance. +44 (0)20 7311 2746 [email protected] Karen Killington +44 (0)20 7694 4685 [email protected] © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 5 TRAUM (C-492/13) CJEU JUDGMENT The CJEU has released its Judgment in this case concerning the conditions for the exemption for intra community supply of goods. Steve Powell +44 (0)20 7311 2746 [email protected] Karen Killington +44 (0)20 7694 4685 [email protected] Traum supplied goods to a customer in Greece, treating these as VAT exempt intra community supplies of goods. The taxpayer held invoices with the customer’s VAT number, acceptance and hand over reports, consignment notes and a signed certificate for the receipt of the goods. Shortly afterwards, the tax authorities performed a check on the VAT Information Exchange System (VIES), which confirmed that the customer’s VRN was valid. However, on performing a similar check two years later, the VIES system confirmed that the customer had subsequently deregistered. On the basis that the customer was not VAT registered at the time of supply, the local tax authorities assessed Traum for VAT. In responding to the questions referred, the Court noted that whilst it is left to Member States to lay down the conditions for exemption of such supplies, they must observe the principles of legal certainty and proportionality. The Court observed that it would be contrary to legal certainty to subsequently prevent exemption if a taxpayer had met all the conditions required at the time and if exemption had been initially accepted by the tax authority. Therefore, the Court concluded that a supplier cannot be deprived of exemption based on irregularities on VIES. In their written observations, the Bulgarian tax authorities suggested that Traum did not act in good faith and had not demonstrated due diligence. On this point the Court concluded that exemption could only be precluded where the supplier knew or should have known the goods were connected with fraud. To read the Judgment click here. THE UNIVERSITY OF HUDDERSFIELD – UPPER TRIBUNAL DECISION This case considers whether a lease and lease back arrangement in respect of a property, on which significant refurbishment costs were incurred, was abusive. The University of Huddersfield (The University) entered into a 20 year lease and lease back arrangement in respect of a property on which it incurred significant refurbishment costs. At the time in 1996 the option to tax was disapplied in respect of all supplies of land between connected parties where either was partly exempt. The lease and lease back (at market rents) was, however, between the University and a Trust, which did not meet the definition of a connected party to the University. So the University was able to opt to tax the property and recover all the VAT on the refurbishment costs, attributing it to the taxable rent charged to the Trust. The Trust also opted and charged the University VAT on rent, which was largely irrecoverable by the University as it used the building to make exempt supplies of education. The leases © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 6 Steve Powell +44 (0)20 7311 2746 [email protected] Karen Killington +44 (0)20 7694 4685 [email protected] both collapsed when the six year break clauses were exercised, at which time the input tax claimed on the refurbishment was still greater than the irrecoverable VAT incurred on the rent. HM Revenue & Customs (HMRC) argued that the refurbishment VAT should be treated as an overhead of the University and the arrangements were abusive; the leases were not economic activities. The case was referred to the CJEU with Halifax (C-255/02) and BUPA (C-419/02). After that it came back to the First Tier Tribunal (FTT), but was then stood over behind Weald (C-103/09). After the CJEU in Weald said that a lease structure was not abusive, though low rents could be, the FTT found the University structure was not abusive as it was similar to Weald. HMRC appealed that FTT decision and has won at the Upper Tribunal (UT). The UT has decided that Weald can be distinguished from the University’s position because the University had done more than just spread its VAT cost over a number of years, and that the unacceptable tax advantage is recovering the input VAT by inserting what was considered to be an artificial taxed output. The transactions should be redefined to ignore the leases, which were the abusive transactions. Click here to read the decision. BRIEF 35/14: LOK'NSTORE GROUP PLC DECISION ON CALCULATING DEDUCTIBLE VAT HMRC have issued a Brief on its position following the Upper Tribunal’s decision in Lok’nStore Group PLC. This Brief sets out HMRC’s position following the recent Upper Tribunal (UT) decision in Lok’nStore Group PLC (LnS). To access the Brief, click here. The case concerned whether the floor based Partial Exemption Special Method (PESM) proposed by LnS produced a more fair and reasonable result. HMRC’s appeal was dismissed by the UT earlier this year. The Brief confirms that HMRC are not appealing the decision. The Brief adds however that they do not intend to change their policy regarding floor space PESMs and do not consider that floor space methods are usually appropriate for the retail sector. As well as background and a summary of the UT decision, the more interesting part of the Brief is section 1.3, which gives HMRC’s view of the decision. This starts by © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 7 Steve Powell +44 (0)20 7311 2746 [email protected] Karen Killington +44 (0)20 7694 4685 [email protected] emphasising that the question as to whether an input cost is a cost component of an output is highly fact specific and must be answered by understanding and assessing the economic or commercial reality underlying the use of the relevant VAT inputs. HMRC agree that, as in LnS, where VAT bearing costs are used only slightly for exempt supplies, then a method which results in almost full recovery is appropriate. HMRC however do not agree that a cost can only be a cost component of an output supply if the price of that output was set by reference to the cost – even where the price of an output transaction is not set by reference to particular costs, those costs can still be incorporated into the price in that they contribute to its value. This was the conclusion of the Tribunal in TLLC Ltd, and is probably reflected in the ING decision above where the exempt banking services had no monetary “price”. The Brief ends by saying that businesses wishing to apply for a new or amended PESM similar to that in LnS will need to demonstrate that the overhead costs are not cost components of their exempt supplies, and that they do not intend to recover those costs through their exempt outputs. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 8 EMPLOYMENT TAX EXTENSION ANNOUNCED TO THE TRAVEL AND SUBSISTENCE REVIEW The Government has extended the closing date for its consultation on the taxation of travel and subsistence expenses to 31 January 2015. Steve Wade +44 (0)20 7311 2220 [email protected] The Government has extended the closing date for its consultation on the taxation of travel and subsistence expenses to 31 January 2015. The consultation, which began in earnest last month, is a key opportunity to review the rules and guidance currently governing the tax and National Insurance treatment of travel and subsistence costs reimbursed to employees. This first stage of the review was due to close on 23 October 2014. The extension is welcome as the area is complex and the implications of how salary sacrifice interacts with travel and subsistence expenses will also need to be considered. The extended deadline should allow more time for the wide range of interested parties to look at the goals and impact of the review and any proposed changes in more detail. KPMG in the UK remains centrally involved in the ongoing consultation and we will continue to bring you updates as the process develops. Mike Lavan +44 (0)20 7311 1437 For further detail on the review and salary sacrifice, please see our articles on KPMG in the UK's Employers Club. [email protected] © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 9 VISA The joint scheme is expected to commence later this month and aims to facilitate smoother travel between Ireland and the UK by individuals requiring a short-stay visa. The Scheme was formally launched on 6 October 2014, by the UK Home Secretary and the Irish Minister for Justice and Equality. In the first instance, nationals from India and the People’s Republic of China will benefit as the requirement for two separate visas will be abolished and a single short-stay visa will be issued by either Ireland or the UK, allowing travel between both jurisdictions. NEW JOINT BRITISH-IRISH SCHEME ANNOUNCED Angus Menzies +44 (0)20 7694 5613 [email protected] Currently the policy requires separate visa applications when travelling between Ireland and the UK, regardless of duration or purpose of stay, which can make the process onerous and labour intensive. Irish Minister for Justice and Equality Frances Fitzgerald stated that the new policy removes a barrier to travel. It will also mean less administration and time taken for application and processing, which has advantages for employers needing to send employees to the UK and Ireland for business. Due to the nature of business conducted by “visa required” nationals entering Ireland and/or the UK, frequent travel between both jurisdictions is not uncommon. It is expected that “visa required” nationals from other locations will be included in the near future and exact details are anticipated shortly. For further details see this Flash Alert from KPMG in the UK and KPMG in Ireland. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 10 INTERNATIONAL STORIES INTERNATIONAL ROUND UP This week: changes to Brazilian CFC rules; VAT in the Bahamas; the Trinidad and Tobago Budget; a summary of the VAT 2015 changes; ECOFIN agreement on revised cooperation directive; CJEU decision on German fund legislation; Irish Budget; corporate tax reform in Switzerland; and proposed tax changes in Belgium. Americas Brazil - Recent guidance extends a deemed or “presumed tax credit” of 9 percent under the controlled foreign corporation (CFC) rules to Brazilian companies with foreign investments in certain industrial sectors. Bahamas - A value added tax (VAT) system in the Bahamas will take effect from 1 January 2015. Trinidad and Tobago – A recent report from KPMG in Trinidad and Tobago looks at tax measures in the 2015 Budget. More TaxNewsFlash – Americas can be found here. Europe EU – The EU has published an overview of the 2015 VAT changes to telecommunications, broadcasting, and electronic services. EU - The EU Council of Economic and Finance (ECOFIN) Ministers has reached an agreement on a revised “administrative cooperation directive”, intended to promote automatic information exchange. CJEU – The Court of Justice of the European Union has published its decision in Van Caster (C-326/12). It ruled that German legislation which requires both resident and non-resident investment funds to communicate and publish specific information on income, in the absence of which investors were liable to tax on a deemed sum rather than actual income, was contrary to the free movement of capital. Ireland – Tax measures in the Irish Budget included changes to the rules on company residence, and the introduction of a ‘Knowledge Development Box’ regime for intangible assets. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 11 Switzerland – the consultation into proposals for corporate tax reform has begun. Belgium – the coalition government has reached a tentative agreement on proposed tax changes, which would affect corporate tax, income taxes and VAT. More TaxNewsFlash – Europe can be found here. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.. 12 OTHER NEWS IN BRIEF A ROUND UP OF OTHER NEWS This week: Taxation of Pensions Bill; HMRC publish new estimate of tax gap; latest edition of the Retail Sales Monitor; and an award for our Private Client team. The Taxation of Pensions Bill has been published. The Bill, previously circulated as a consultation draft, contains provisions to implement the DC pensions flexibility measures announced in the Budget. HMRC have published Measuring Tax Gaps providing their latest estimates of the tax gap, together with an issue briefing. These show that, using HMRC’s methodology, the gap in 2012-13 was 6.8 percent of GDP (£33bn), up from last year’s estimate of 6.6 percent (£34bn). The tax gap is, broadly, the difference between the tax due (in the case of avoidance, the tax that would have been due if avoidance had not been used) and the tax that HMRC have collected or expect to collect eventually. The September edition of BRC-KPMG’s Retail Sales Monitor shows that UK retail sales were down 2.1 percent on a like-for-like basis from September 2013, when they had increased 0.7 percent on the preceding year. KPMG in the UK’s Private Client team have won the “Accountancy Team of the Year 2014 2015” award at the recent Society of Trust and Estate Practitioners (STEP) Private Client Awards. STEP is the worldwide professional association for practitioners dealing with family inheritance and succession planning. © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 www.kpmg.co.uk © 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International.
© Copyright 2024