22 November 2024
Supreme Court dismisses taxpayers’ appeal on time limits for enterprise zone allowances
The Supreme Court has dismissed the taxpayers’ appeal in the enterprise zone allowances (EZAs) case R (oao Cobalt Data Centre 2 LLP and another). The appeal concerned (since repealed) legislation in the Capital Allowances Act 2001 that allowed for initial 100% capital allowances for qualifying expenditure incurred in the construction of buildings in designated enterprise zone sites. Section 298 of the Act required such expenditure to be incurred “under a contract” entered into within 10 years of a site being included in an enterprise zone.
In this appeal, a site owner had sought to preserve the ability to claim EZAs, and shortly before the 10-year limit, a construction contract was entered into setting out a range of potential alternative construction projects for the site, incorporating certain contractual rights to make changes. HMRC contended that these rights were insufficiently wide to require the contractor to build the data centres that were ultimately built, and that these were therefore contracted for after the 10-year limit. The Court agreed that key changes were not validly made in line with the rights in the original contract, and therefore on a proper construction of section 298, the relevant expenditure was not incurred ‘under a contract’ made before the time limit.
Upper Tribunal dismisses appeal on SDLT group relief main purpose test
The Upper Tribunal has dismissed an appeal by a taxpayer in the stamp duty land tax (SDLT) case The Tower One St George Wharf Limited. The case relates to a series of transactions for the transfer of the freehold of a residential property from one group company to another. Although there were commercial reasons for the transfer to a separate legal entity, the group also (incorrectly) understood that a corporation tax advantage, namely a tax-free step-up in the building’s base cost, could be obtained if the transfer was implemented in a certain way. This included additional steps of granting a lease to a third group company, and the subsequent intragroup transfer of that lease. Group relief from SDLT (under Schedule 7 Finance Act 2003) on the lease transfer was claimed, but HMRC refused on the basis that a restriction in Paragraph 2(4A) applied as the transfer formed “part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of liability to tax”.
The Upper Tribunal held that the fact that the intended corporation tax result did not ultimately arise did not prevent the arrangements from being regarded as having a tax avoidance purpose. Nor was it relevant that any (intended) step-up in base cost would not have resulted in an immediate saving of corporation tax. Applying recent case law on the similarly-worded corporation tax loan relationships ‘unallowable purpose rule’ (section 441 CTA 2009), the Upper Tribunal agreed that the main purpose test was met and so SDLT was payable.
The Upper Tribunal also agreed with the First-tier Tribunal that the transfer did not qualify for a statutory exception from an SDLT deemed market value rule for transactions with a connected company (section 53 FA 2003). This meant that the SDLT charge arising was based on the market value of the lease (approx. £200m) and not the actual consideration paid (approx. £30m).
Court of Appeal refuses judicial challenge to diverted profits tax notice
The Court of Appeal has dismissed the taxpayers’ appeal in the diverted profits tax (DPT) judicial review case R (oao Refinitiv Limited and others). The taxpayers were challenging the lawfulness of DPT notices for 2018 issued to them in relation to profits arising to an overseas group company on the disposal of intellectual property. HMRC used a ‘profit-split’ transfer pricing method to calculate the amount of profit they considered was subject to DPT on the UK companies owing to their involvement in the enhancement of the intellectual properties. The taxpayers argued that this was unlawful as the calculation was inconsistent with the terms of an earlier advance pricing agreement (APA) agreed with HMRC covering the years 2008 to 2014. This APA used a ‘cost-plus’ method to determine the arm’s length remuneration for the enhancement services provided by the taxpayers. The Court agreed with the Upper Tribunal and unanimously dismissed the appeal. In its view, under the UK legislation governing APAs, 2018 was not a period to which the APA ‘related’ to, and accordingly there could be no objection in public law to the DPT assessments for 2018.
OECD publishes mutual agreement procedure and advanced pricing agreement statistics
The OECD has released the latest in its annual series of mutual agreement procedure (MAP) statistics, looking at the effectiveness and timeliness of dispute resolution mechanisms within double tax treaties for the calendar year 2023, and highlighting the continued importance of MAP as a mechanism to relieve double taxation. For transfer pricing cases (including profit attribution to permanent establishments), the average time to resolve a case was 32.0 months (up from 28.9 months in 2022). For non-transfer pricing cases, the average time to close a case increased to 23.4 months (up from 22.2 months in 2022). For the first time, 46 jurisdictions with bilateral advanced pricing arrangement (APA) programmes also reported APA statistics, showing an aggregate of over 4,000 cases in inventory, and an average duration of 36.8 months to agree an APA. 860 APAs were granted during 2023.
Individual statistics for cases involving the United Kingdom are available here. The number of UK transfer pricing MAPs closed in 2023 was 134, and 104 new cases were submitted. The average time taken to close post-2016 transfer pricing cases in the UK in 2023 was 25.3 months. The UK had 159 APA cases in its inventory as at 31 December 2023, and the average time taken to grant an APA was 45.5 months.
Act for devolved Scottish aggregates tax receives Royal Assent
The Aggregates Tax and Devolved Taxes Administration (Scotland) Act 2024 (the Act) received Royal Assent on 12 November 2024. The Scotland Act 2016 gave the Scottish Parliament the power to introduce a devolved aggregates tax in Scotland, to replace the UK aggregates levy. The Act implements this power, and creates the Scottish aggregates tax, to be administered by Revenue Scotland. The Act sets out the scope of the tax, including exemptions, who should pay the tax, and how the tax should be calculated. The Act also provides for the powers of the Scottish Ministers to set the rate of tax, and includes provisions for penalties and administration. The Scottish government has stated that the Scottish aggregates tax is expected to come into effect on 1 April 2026, and that Revenue Scotland will engage with stakeholders in the development of return and payment processes.
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax webcast will be on Wednesday 27 November 2024 at 12:00 GMT/13:00 CET. Unleashing the value of employee benefits is the fourth in our Global Employer Services A world of talent series. Our presenters will discuss the increased pressure on employers to provide employee benefits that support and align with wider corporate strategy, and how better defining a benefits strategy, improving communications, and maximising the employee value proposition, whilst balancing budget constraints, can assist with employee retention and well-being.
Then on Thursday 28 November 2024 at 12.00 GMT/13.00 CET, there will be a webcast from our international tax series Digitalisation of supply chains – how do tax and legal play their part?. Our panel will discuss the increasing digitalisation of businesses’ supply chains, and the importance of tax and legal teams in any supply chain digitalisation project.