Michael has been a partner JHA since its inception. He has over 25 years of litigation and advisory experience and for much of that time his practice has focused on tax disputes. He deals with enquiries and investigations as well as litigation when necessary in both in the tax tribunals and courts.
In addition, Michael advises private clients and their businesses on a wide variety of tax issues and general commercial matters.
Admitted as a solicitor in England and Wales, 1997
College of Law – LPC
University of Cambridge – BA
Michael has received numerous recommendations. The Legal 500 UK has recognised Michael from 2009 to the present, alongside the tier one ranking accorded to JHA’s contentious tax team, since the firm’s inception in 2013. He has been a top ranked partner in Chambers UK for Contentious Tax from 2008 to the present. The most recent edition says Michael is ‘noted for his expertise in high-value tax disputes. He has a wealth of experience in international tax disputes and is adept at handling matters in non-UK jurisdictions.’
Advocate General (AG) Kokott has issued her opinion in two cases concerning claims for group relief made by Swedish companies for the losses of wholly-owned direct and indirect subsidiaries established in other EU Member States. The opinions are in line with the AG’s consistent approach that the “no possibilities” test in Marks & Spencer (C-446/03) is unclear and should therefore be abandoned. This view, expressed in Commission v United Kingdom (C-172/13) and in A Oy (C-123/11), has repeatedly not been followed by the CJEU.
In Holmen AB v Skatteverlet, a Swedish parent company sought the deduction of losses in a wholly-owned Spanish company which it held indirectly through a Spanish subsidiary. The Holmen group planned to either liquidate the sub-subsidiary and the subsidiary, in the same year and in that order, or merge the sub-subsidiary into the Swedish parent. If the Spanish sub-subsidiary had also been Swedish, loss relief would have been available and its losses could have been used or carried forward in the Swedish parent. In Memira AB vSkatteverlet, a Swedish parent sought the deduction of losses in a wholly-owned German subsidiary. The Memira group planned to merge the subsidiary into the Swedish parent. Swedish law allowed loss relief in mergers only if the transferring company had taxable income in Sweden.
AG Kokott held, in both cases, that the differences in treatment under Swedish law did amount to a restriction on the freedom of establishment. However, the AG took the view that the restrictions were justified by the preservation of balanced allocation of the power to impose taxes between Member States.
Firstly, the AG concluded that the use of the losses in the Spanish sub-subsidiary, and in the German subsidiary, by Holmen and Memira respectively, undermined Sweden’s fiscal autonomy because it required Sweden to adapt its tax legislation to account for losses that had originated solely from the operation of the Spanish and German tax systems. In the AG’s view, this conclusion followed from the fact that the losses in the sub-subsidiary were primarily a consequence of Spain’s 2011 reform, which had limited the amount of profits that companies could set off against losses incurred in previous years, and from the fact that German law did not allow losses to be transferred by way of merger.
Secondly, the AG concluded that the accumulated losses, which were initially regarded as non-final (as under German and, with limitations, Spanish law they could be carried forward), could not subsequently become final losses by the fact that they could not be further carried forward after the merger or liquidation of the loss-making companies. This conclusion was underpinned by the AG’s view that the “no possibilities test” in Marks & Spencer required taxpayers to exhaust all possibilities to use the losses in the Member State in which they had arisen, including the possibility of transferring the losses to a third party. The AG therefore took the view that the losses were not final also because neither Holmen nor Memira had exhausted that possibility.
Thirdly, the AG concluded that it could not be inferred from the fact that the decision in Marks & Spencer had not differentiated between final losses of subsidiaries and sub-subsidiaries that the CJEU had implicitly allowed parent companies to use the final losses in a sub-subsidiary. In Holmen, the AG stressed that, because it was still in principle possible for the direct Spanish parent company to set off the losses in Spain, there was a fundamental precedence for setting off the losses in the sub-subsidiary against the Spanish parent company over the setting off of the against the indirect Swedish parent (Holmen). The losses in Holmen’s Spanish sub-subsidiary were therefore not final in respect of the Swedish indirect parent.
HMRC appears to have concluded that significant numbers of businesses have yet to align their transfer pricing policies with the transfer pricing outcomes of the OECD/G20 BEPS Project. HMRC has accordingly introduced a new Profit Diversion Compliance Facility (PDCF) to encourage multinational enterprises (MNEs) to make voluntary disclosures about any transfer pricing arrangements that fall within the scope of the Diverted Profits Tax (DPT) legislation.
MNEs are encouraged to review their transfer pricing policies, change them if appropriate, and submit a report with a proposal to settle any tax, interest and penalties due. Reports made by MNEs that are not already subject to an investigation by HMRC will be treated as unprompted disclosures, and will thereby attract lower minimum penalties. In certain circumstances penalties will be reduced to nil as long as accurate disclosure is made by 31 December 2019. HMRC also states that tax-related criminal investigations will be highly unlikely if a full and accurate disclosure is made.
HMRC has stated that it will contact businesses it has identified, through its ongoing data analysis, as having a combination of features associated with profit diversion. Using the PDCF may be beneficial if you are contacted by HMRC, or if you feel you may be at risk of a DPT investigation.
Is this relevant to you?
The PDCF guidance provides useful insight into HMRC’s views on what situations give rise to profit diversion risk, how a transfer analysis should be carried out, and what evidence is required to support intragroup transfer pricing policies.
HMRC’s indicators of Profit Diversion Risk include situations where:
How JHA can help
Given HMRC’s approach, you may wish to seek a second, independent view on whether your current transfer pricing filing position is robust. If you do, we can offer unique expertise in assessing whether you may be at risk of a transfer pricing related tax charge and, if so, how best to present your case to HMRC under the PDCF.
JHA’s tax disputes team has vast experience of dealing with HMRC enquiries and investigations in transfer pricing disputes, having advised on some of the highest profile and value disputes in recent years. Uniquely, we are top ranked in both Chambers & Partners and Legal 500 for tax disputes generally. We bring together in one firm specialist tax QCs, experienced tax disputes solicitors, and forensic accountants. We are independent of, but have good relations with, the Big 4 and other leading accounting firms. We consider that we are exceptionally well placed to help guide you through any report you wish to make under the PDCF, whether with your internal team or working in conjunction with your other tax advisors.
Originally printed in Tax Journal on 26 Feb 2016.
The recent judgment of the Court of Justice in Scotch Whisky Association and Others v Lord Advocate and Advocate General for Scotland (C-333/14) (23 December 2015) provides further guidance on how national courts in the EU should review legislation restricting trade. The CJEU decided that excise duty, rather than a minimum selling price, was the correct mechanism to combat the evils of alcohol abuse. In doing so, the court applied a much more stringent proportionality test when deciding whether measures equivalent to quantitative restrictions could nevertheless be justified under TFEU article 36. However, in applying this strict proportionality test and considering alternative measures, the court showed no regard for the member state’s devolution arrangements and the actual powers of the authority by which the contested measure was adopted. The case highlights the complexities of policy making where both the legislative competence of a devolved administration and compatibility with EU law need to be considered.
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Originally printed in Tax Journal on 1 Nov 2013.
Michael Anderson and Samantha Wilson examine the recent High Court ruling on Prudential, the test case in the CFC and dividend GLO.
Under the credit system in place before 2009, non-resident dividend income from the EU/EEA is not to be regarded as exempt but as taxable with credit, in addition to withholding tax, for the higher of the tax actually paid on the profits or the nominal (statutory) rate of the jurisdiction of the dividend paying company. The same outcome applies where the investment is below a controlling interest for dividends from all jurisdictions outside the EU/EEA as well. Where possible, tax returns must be amended to claim the enhanced credit, rather than to show the non-resident income as exempt. The claimants are entitled to compound interest on overpaid tax. HMRC’s ‘change of position’ defence is contrary to EU law.
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The Supreme Court hearing took place on 15 April 2013 in the Marks & Spencer group relief case. The hearing dealt only with the question of when the no possibilities test should be assessed (at the end of the accounting period in which the losses arose or at the date of the claim). The Supreme Court will decide whether or not that issue needs to be referred back to the CJEU and, if not, will determine the matter itself. Judgment has been reserved.
This article appears in the JHA April 2013 Tax Newsletter, which also features:
