7 June 2024
As reported in last week’s Business Tax Briefing, Finance (No. 2) Bill 2023-24, introduced following March’s Spring Budget, received Royal Assent on 24 May 2024 shortly prior to the prorogation of parliament. The text of Finance (No. 2) Act 2024 has now been published online by the National Archives. The PDF version of the Act is available here, and the HTML version is here.
The Upper Tribunal has dismissed HMRC’s appeal in Burlington Loan Management DAC which considers whether a payment of UK-sourced interest, arising on a debt assigned to an Irish resident taxpayer, was prevented from qualifying for relief from UK withholding tax under the 1976 UK-Ireland Double Tax Convention due to a main purpose test within the treaty’s interest article.
The debt was previously held by a creditor resident in a jurisdiction which did not have a tax treaty with the UK. Prior to the payment of interest, the debt was purchased by an unrelated Irish resident company, Burlington, with the price paid reflecting an assumption that treaty relief would be available. HMRC considered that the interest article’s main purpose test (as it stood at the time, prior to being replaced under the BEPS Multilateral Instrument) was met – i.e. that a main purpose of a person concerned with the assignment of the debt-claim was ‘to take advantage of’ the interest article – and so refused Burlington’s claim for a refund of the approximately £18.1 million of UK tax withheld on payment of the interest.
Largely for the same reasons as the First-tier Tribunal, the Upper Tribunal rejected HMRC’s interpretation of the test and the meaning of ‘to take advantage of’ in the context of the article. In its view, the test was not to be read as if it were a provision contained in a UK statute, concerned solely with whether there was avoidance UK tax. Instead, the role of the First-tier Tribunal in considering the test was to determine the subjective purposes of both the seller and the purchaser and then determine whether there had been an abuse of the treaty’s rules allocating sole taxing rights to Ireland. Based on the First-tier Tribunal’s findings of fact, it agreed that, in the particular circumstances of the case, the test was not met.
HMRC have updated their guidance page Corporation Tax — service availability and issues to warn of a temporary IT maintenance issue that may be causing delays in receiving automated return acknowledgment responses following a successful filing of a Company Tax Return (CT600). Such delays may be experienced until 13 June 2024. HMRC recommend contacting their online service helpdesk if a filer has not received the expected online submission response within 48 hours of submission.
HMRC have started to issue a new series of ‘one-to-many’ letters to certain taxpayers who may have made excessive claims for capital gains tax business asset disposal relief (BADR, formerly entrepreneurs’ relief) in their self-assessment tax returns for 2022/23. According to the CIOT, HMRC’s Wealthy Team is sending such letters to individuals whose claims exceeded the £1 million BADR lifetime limit in 2022/23; or where they had already exceeded this limit in prior years. Recipients of the letter are invited to contact HMRC and/or to amend or remove any excessive BADR claims within 30 days.
The OECD has announced that Fiji and Moldova have become the latest countries to join the OECD/G20 Inclusive Framework on BEPS, becoming the 146th and 147th members, respectively. The jurisdictions of the Inclusive Framework are, amongst other things, committed to implementing and maintaining BEPS minimum standards in the areas of dispute resolution, treaty abuse, country-by-country reporting to tax authorities, and harmful tax practices. The full list of members can be found here. Both countries have also joined the list of Inclusive Framework jurisdictions committed to the two-pillar plan to address the tax challenges arising from the digitalisation and globalisation of the economy.
NHS England engaged Spectrum Community Health CIC to deliver primary healthcare at prisons across the North of England (including nurses, GPs, pharmacies, mental and sexual health services, optometry, dentistry, and physiotherapy). Spectrum viewed its various services as separate, which meant that (although its services were mostly exempt healthcare) supplies of drugs should be zero-rated and sexual health products should be reduced-rated, meaning that Spectrum should be entitled to some input tax recovery. HMRC disagreed, and in 2022 the First-tier Tribunal dismissed Spectrum’s appeal. At the Upper Tribunal, Spectrum pleaded that the CJEU’s 1988 judgment in EC v UK (C-353/85) (as considered in Klinikum Dortmund) meant that goods should always be treated as physically and economically dissociable from medical services. In EC v UK, the CJEU ruled that the UK should not exempt supplies of goods such as spectacles that were provided alongside medical care (and the same approach would have justified Spectrum’s claim that its various services were separate). However, the difficulty with relying on such old authority is that it pre-dates cases such as CPP, Levob, Město Žamberk, and Frenetikexito which have established core principles in this area. In the decision of the Upper Tribunal, EC v UK did not provide any grounds for departing from these more recent authorities in relation to medical services. Spectrum was making a single supply of healthcare services (from the perspective of NHS England, which received the services), and was not entitled to recover input tax. Spectrum’s appeal was dismissed. (Contact: Phil Simmons)
On Thursday 13 June 2024, there will be an EMEA Dbriefs Legal webcast at 13:00 BST/14:00 CEST titled Digital Nomads – A New Challenge. Our panel of speakers from the UK, Italy and Spain will discuss the increasing desire of workers to embrace technology to perform their work anywhere in the world, and the growing interest of businesses to put in place formal policies and programmes to facilitate this trend. Our panel will discuss relevant areas of employment law, tax, immigration and social security, and their experiences in implementing and managing solutions.
The next EMEA Dbriefs Tax webcast is on Thursday 20 June 2024 at 14:30 BST/15:30 CEST. From our UK Tax Focus Series, UK General Election 2024 will cover the upcoming UK general election that will take place on 4 July 2024. The parties running for election will soon publish manifestos setting out their policies for what they would do in office. Our panel will discuss the tax policy and trade aspects of the manifestos and look at how the election may affect your business.