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The new legislative announcements in the 2017 budget include:

• With effect from April 2019, income tax will be charged on royalties that are paid to low tax jurisdictions irrespective of where the payer is located. The government’s position paper on corporate tax and the digital economy is available here.
• Assessment time limits for non-deliberate offshore tax non-compliance will be extended so that HMRC can always assess at least 12 years of back taxes without needing to establish deliberate non-compliance, following a consultation in spring 2018.
• From April 2020, income that non-resident companies receive from UK property will be chargeable to corporation tax rather than income tax. Also from that date, gains that arise to non-resident companies on the disposal of UK property will be charged to corporation tax rather than CGT.
• Capital gains tax will be extended to all non-resident gains from April 2019.
• Oil and Gas tax: introduction of transferable tax history to facilitate the transfer of late life oil and gas assets. Draft legislation to be published from 1 November 2018.

Double Tax Relief

Regarding double tax relief, from 22 November 2017 the government will introduce a restriction to the relief for foreign tax incurred by an overseas branch of a company, where the company has already received relief overseas for the losses of the branch against profits other than those of the branch. The restriction aims to ensure that double tax relief is not granted for same losses. The Double Tax Relief Targeted Anti-Avoidance Rule will also be amended to remove the requirement for HMRC to issue a counteraction notice, and will extend the scope. Legislation will be introduced in Finance Bill 2017-18 to include a new section 71A in Part 2 of TIOPA 2010 to restrict the amount of credit allowed or deduction given for foreign tax where the company has received relief for losses against non-PE profits in the foreign jurisdiction.

The amount of double taxation relief available will instead be determined by reference to the amount of foreign tax suffered by the overseas PE, less the amount of the reduction in foreign tax which results from the PE’s losses being relieved against non-PE profits in a foreign jurisdiction in the same or earlier periods.

Tax Avoidance

The government also introduced new legislation to counter the effect of tax avoidance arrangements. The new legislation makes amendments to the double taxation relief targeted anti-avoidance rule (DTR TAAR) contained in Part 2 TIOPA 2010. The amendments make two changes to that legislation. The first change removes the requirement for HM Revenue and Customs to give a counteraction notice in order to apply the DTR TAAR and will have effect for returns with a filing date on or after 1 April 2018. The second change will extend the scope of one of the categories of prescribed schemes to which the TAAR applies to include tax payable by any connected persons. The second change will have effect for payments of foreign tax made on or after 22 November 2017.

Further, the government will remove the 6-year time limit within which companies must adjust for transactions that have reduced the value of shares being disposed of in a group company. This change will take effect for disposals of shares or securities in a company made on or after 22 November 2017.

Amendments will be made to the corporate interest restriction rules some of which will be treated as having effect from 1 April 2017 when the Corporate Interest Restriction rules commenced and remainder from 1 January 2018. Large businesses with the charge to CT which incur net interest expense and other financial costs (within the scope of CT) above £2m per annum will be affected. 

This article appears in the JHA November 2017 Tax Newsletter, which also features:

1. Commission State Aid Enquiry – UK CFC Provisions
2. A Oy – immediate taxation of capital gains of non-resident PE
3. Advocate General finds Dutch tax consolidation regime to infringe the freedom of establishment
4. Belgian rules limiting interest deduction to the extent of dividends received
5. Jacobs v French Minister for Finance and Public Accounts (C-327/16)