The Statutory Residence Test provides that an individual is considered to have spent a day in the UK if they are in the UK at the end of the day (midnight) subject to several exceptions, one of which is exceptional circumstances. The exception applies for 60 days only in any given tax year.
During the COVID-19 pandemic HMRC have confirmed that the following circumstances are considered exceptional:
Exceptional days up to a maximum of 60 days per tax year will be disregarded for the purposes of:
But importantly the concession will not apply for the counting of days in relation to:
Currently there is no definitive date after which all days are regarded as exceptional for 2019/2020. HMRC are still considering this point. 23 March 2020 (lock down announced) would seem to be a reasonable point.
As announced in July of last year, the 2020 Budget introduces a new deferred payment plan option for Corporation Tax charged on profits or gains arising from certain transactions between UK companies and EEA companies of the same group of companies. The new rules will allow the deferral of CT over a period of up to 5 years, and has effect from 11 July 2019 for transactions occurring in accounting periods ending on or after 10 October 2018. The new measures follow the FTT decision in Gallaher to the effect that the absence of a deferral option was in breach of EU law and the option could not be read into the legislation.
The 2020 Budget announced provisions to reverse last year’s FTT decision in Inverclyde. In that case, HMRC denied the appellant LLPs’ claims for Business Property Renovation Allowance on the basis that the LLPs did not carry on a business with a view to a profit. The LLPs argued that, if that were the case, HMRC were wrong to open enquiries into their members’ returns as the LLPs would be opaque for tax purposes, and thus the amendments removing the allowance were invalid. HMRC argued that, because the LLPs filed a partnership return, they were entitled to open an enquiry. The FTT agreed with the taxpayers.
Although the draft legislation has not yet been released, documents released alongside the budget indicate that the new provisions will reverse the Inverclyde decision retrospectively. From the date of Royal Assent of the Finance Bill 2020, HMRC will be allowed to amend LLP members’ returns to reflect its conclusion that an LLP is not trading with a view to profit. All amendments already made on this basis will also be valid.
HMRC continues to fight the good fight in its quest to cut down on tax avoidance and have recently been issuing further “nudge” letters to taxpayers who may have an income source or assets producing gains overseas and consequently an undisclosed outstanding UK tax liability. The letter reminds the taxpayer that HMRC have visibility on overseas income or gains via their network of global information exchange and the onus is on the taxpayer to regularise their tax affairs. Unforced disclosure will result in reduced penalties for non-compliance.
Batches of these letters are being sent out weekly by HMRC and ultimately thousands are expected to be issued. Some letters are accompanied by a certificate whereby the taxpayer can state that his tax position is up to date and all in order or that he needs to make a disclosure. Taxpayers need to ensure that they fully understand the statement they are making and the repercussions of making an inaccurate or incomplete statement before they return the form.
Changes have been made to the original wording of the letter but it still directs those who need to make a disclosure to the Worldwide Disclosure Facility which may not be appropriate in all cases, particularly as it does not offer protection or assurances against criminal investigation.
The First-Tier Tribunal (“FTT”) decision in Esso Exploration and Production UK Limited and others v HMRC, which relates to pre-2006 claims for Cross Border Group Relief, has now been released.
In its decision, the FTT did ultimately reject the claims but, whilst doing so it concluded that nothing in the case law of the CJEU challenges the Supreme Court ruling in Marks & Spencer Plc v Revenue and Customs Commissioners [2013] UKSC 30 that the “no possibilities” test should be applied as at the date of the claim.
The claim concerned an application for group relief of a UK company from an EU sister company joined by a common US parent. The claimants sought to rely on the non-discrimination article of the USA-UK Double Tax Convention on the grounds that group relief would have been available if the common parent was UK resident. The Tribunal, however, found that group relief provisions did not engage the NDA in DTCs.
Finally, in applying the “no possibilities” test, the Tribunal adopted a very strict test which does not appear to accord with the far more practical and liberal approach taken in recent EU cases (see for example C-607/17 Skatteverket v Memira Holding AB and C-608/17 Skatteverket v Holmen AB).
Should you be interested in the application of this decision to your claims for Cross Border Relief, please contact any member of our team who will be able to advise further.
This is a long-running dispute between HMRC and investors over tax liabilities related to film and game investment schemes promoted by the Ingenious group of LLPs. Having lost the appeal to the First-Tier Tribunal, the LLPs appealed to the Upper Tribunal on eight grounds. HMRC cross-appealed on two grounds.
The hearing at the Upper Tribunal centred on, among other points, whether the LLPs were trading with a view to a profit. If not, HMRC argued, they were not entitled to offset losses amounting to over £1.6bn against their other taxable income. By judgment released on 26 July 2019, the LLPs’ appeal was dismissed and HMRC’s cross-appeal was allowed.
The LLPs sought permission to appeal to the Court of Appeal on seven grounds. Permission has now been granted to appeal only on Grounds 1 and 3, namely, whether the partnerships were carrying on business “with a view to profit” and whether the tribunal was wrong to conclude that the partnerships were not trading.
Interestingly the Court has refused permission to appeal on the issue of whether the expenses were income or capital in nature. The refusal of this ground appears to render the hearing of Grounds 1 &3 pointless. If it remains that the expenditure incurred by the LLPs was of a capital rather than revenue nature then no deduction could be made whatever the outcome of the appeal
This, however, is not the end of the road as Ingenious can renew its application for permission on the rejected grounds at an oral hearing. If that oral hearing for permission occurs at the same time as the main appeal hearing (which is the usual practice) then the appeal will extend to consideration of the dismissed issues anyway.
Change your attitudes towards preventing tax evasion or suffer the consequences. That was the very strong message intended by the government when new Corporate Criminal Offences (CCO) Powers for HMRC were announced in the March 2015 Budget. As such, since 30th September 2017, it has been a crime for corporations to fail to put in place reasonable procedures to prevent associated persons (those acting for or on their behalf) from criminally facilitating tax evasion. With unlimited fines and the reputational damage entailed from a finding of guilt, this was a significant new power.
Nearly 2½ years later, HMRC have announced that it has 9 live CCO investigations with a further 21 “opportunities” under review across 10 different business sectors, including financial services, oils, construction, labour provision and software development. It has further confirmed that these sit across all HMRC customer groups from small business through to some of the UK’s largest organisations.
Going forward, HMRC intends to update this information biannually.
In a recent judgment for Köln-Aktienfonds Deka v Nederlandse Orde van Belastingadviseurs, the Court of Justice of the European Union (“CJEU”) clarified the rules surrounding free movement of capital in the context of tax refunds granted to collective investment funds and, importantly, the extent to which Member States can legitimately set conditions on granting such refunds.
Why was clarification sought?
Under Legislation introduced into the Netherlands, a regime relating to fiscal investment enterprise (“FIEs”) was established to enable natural persons, particularly small investors, to make collective investments in certain types of assets. Those qualifying from the regime were subject to a zero corporation tax rate and benefitted from a refund of dividend tax withheld on dividends received in the Netherlands.
To qualify for the refund, a number of conditions first had to be met. One of these conditions (the “distribution condition”) was that part of the profit had to be paid to shareholders and holders of certificates of participation within 8 months of the end of the financial year. When doing so, the undertaking needed to withhold Netherlands tax on the recipient’s dividends.
KA Deka was an investment fund established in Germany with share prices listed on the German Stock Exchange which made investments on behalf of individuals. It received dividends distributed by companies in the Netherlands but those dividends were subject to a tax of 15% which was withheld at source. The Netherlands tax authorities rejected its application for a refund, quoting the failure to meet the distribution condition as one of the grounds for the rejection. KA Deka therefore sought to challenge some of these conditions on the ground that they were contrary to free movement of capital.
Could the Netherlands refuse the refund on the ground of failing to distribute profits in time?
Under German law, individuals were deemed to receive an annual amount of dividends. Tax was imposed on half of the dividends actually received and on all dividends which were deemed to have been received to meet the minimum threshold. In challenging this condition, KA Deka argued that whilst it did not distribute profits within the specified timeframe, its situation was objectively comparable to a resident FIE because its proceeds were either deemed to have been distributed or were taken into account in the tax which was levied on its shareholders and participants.
The distribution condition did not expressly distinguish between resident and non-resident investment funds. However, the CJEU emphasised that there could be a de facto disadvantage to non-resident funds even if there was no express discrimination in the domestic rules. Importantly, the court held that making the possibility of obtaining a refund subject to strict compliance with the conditions “irrespective of the legal conditions to which non-resident funds are subject to in their State of establishment” would amount to reserving advantageous treatment to resident funds. As such, the Netherlands tax authorities should not have denied the refund on grounds of failing to meet the distribution requirement if KA Deka’s situation was comparable to a FIE qualifying fund.
To establish if their situation is objectively comparable, the CJEU confirmed that one must look at the aim pursued by the national provisions as well as their purpose and content. Therefore, if the aim of the distribution requirement was to ensure profits reached investors speedily, the deemed distribution was irrelevant and therefore not comparable. In contrast, if the objective lied in the taxation of profits, the court stated that this must be regarded as being a comparable situation meaning the refusal of the refund would amount to a restriction. Determining the true objective of the national provisions was for the national court to decide.
Finally, the CJEU acknowledged that such a restriction may be permitted if justified by overriding reasons of public interest but did not elaborate further as such justification had not been proffered by the Netherlands.
Why is important?
KA Deka opens a useful route of challenge to any refusal of a tax advantage which is founded on a failure to comply with specific requirements set out in national provisions. As such, establishments and individuals alike would be wise to reflect on similarities between the rules of their resident State and those of other Member States to ascertain if any additional tax advantages can be gained.
Finance Act 2019 includes enabling legislation for the implementation of Council Directive (EU) 2017/1852 (“Arbitration Directive”).
The Arbitration Directive provides for a mutual agreement procedure (“MAP”) with mandatory binding arbitration for disputes which remain unresolved after 2 years of the case having been presented for MAP. The mechanism largely renders the arbitration provisions in the OECD BEPS Multilateral Instrument redundant as between the EU Member States and builds on the existing intra-EU tax dispute resolution mechanisms under the European Arbitration Convention (90/436/EC).
There are at least two key takeaways of what the introduction of the Arbitration Directive translates into in practical terms:
Firstly, the Arbitration Directive applies to disputes arising from the interpretation and application of double tax treaties. This means that issues relating to, inter alia, withholding taxes or company residence, which were outside the scope of application of the European Arbitration Convention, can be presented for MAP under the Arbitration Directive.
Secondly, the Arbitration Directive addresses a number of shortcomings in the European Arbitration Convention, particularly in relation to the admissibility and effective handling and conclusion of cases presented for MAP. The increased supervision of national courts and of the Court of Justice of the EU is a distinct advantage. For example:
The Arbitration Directive will apply to disputes relating to income earned or capital gained in a tax period of 12 months commencing on or after 1st January 2018.
Case law concerning the availability of PPR relief continues to apply the legislation in a somewhat inconsistent and unpredictable manner, but some common themes can be identified: the taxpayer needs to be able to produce satisfactory evidence of an intention to reside in the property as a home, and the tribunals will look at both the length of time and the quality of occupation in considering such an intention. The availability of the relief is, however, being curtailed both by HMRC’s increasing eagerness to challenge taxpayer claims, as shown by recent case law and by further legislative changes in the draft Finance Bill 2019/20 provisions which are due to come into force in April. The lack of clarity provided by case law, coupled with a tinkering to the rules by Finance Acts, has led to an increasingly confused picture for taxpayers and consequently undermined their ability to properly plan their affairs.
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