G20 endorses agreement on taxation of the digitalised economy and a global minimum rate
Following the conclusion of the 9-10 July meeting of G20 Finance Ministers and Central Bank Governors in Venice, Italy, the G20 have confirmed their commitment to the two-pillar approach for changes to the international tax framework to address the tax challenges arising from the digitalisation of the economy. The G20’s Communiqué endorses the statement released by 130 countries of the OECD Inclusive Framework on 1 July, regarding their agreement on the key components of rules for nexus and profit allocation to market countries (Pillar One) and a global minimum level of tax (Pillar Two). The Communiqué urges the Inclusive Framework to address remaining issues and policy design elements, and prepare a detailed implementation plan, by the next G20 Finance Ministers meeting in October 2021. The number of countries agreeing to the OECD Inclusive Framework principles has since risen to 132, and now includes Peru and Saint Vincent and the Grenadines.
European Green Deal announcements
The European Commission has released a package of proposals under its European Green Deal, aimed at reducing net greenhouse gas emissions by at least 55% compared to 1990 levels by 2030. Key proposals include a revision of the Energy Taxation Directive to align the taxation of energy products with EU energy and climate policies; changes to the European Emissions Trading System (ETS), with the overall emissions cap further reduced; and the new Carbon Border Adjustment Mechanism (CBAM). The CBAM will establish a carbon price on imports of a targeted selection of products to prevent ‘carbon leakage' and to encourage countries outside the EU to take steps in the same direction. The CBAM is expected to be fully operational from 2026, following a transitional phase from 2023 to 2025. The products within the initial scope of the CBAM proposal are cement, iron and steel, aluminium, fertilisers and electricity generation. EU importers of such products will be required to buy CBAM certificates from their national authorities, with carbon prices already paid on production deducted from the certificate price.
Bonus payments made to LLP members: Upper Tribunal
The Upper Tribunal has given its decision in Charles Tyrwhitt LLP v HMRC. The case concerned bonus payments made to five members of an LLP, who were formerly employees of the LLP, under a long-term incentive plan that they had become members of while still employees. The amount of the payments were calculated by reference to the profits of the LLP, but the First Tier Tribunal held that they represented income from the former employment and were liable to Class 1 National Insurance.. The Upper Tribunal has upheld this decision and dismissed the LLP’s appeal, confirming that the payments had their source in the former employment, rather than in the self-employment as members of the LLP.
National Insurance Contributions Bill: remaining stages
The Leader of the House of Commons Jacob Rees-Mogg has announced that the remaining stages of the National Insurance Contributions Bill will be taken on Monday 6th September.
The next Dbriefs webcast is on Monday 19 July 2021, 14.00 BST/15.00 CEST. The title is G20/OECD The Digitalised Economy - Political Agreement On Taxation Of Digital Economy (Pillar One) And Global Minimum Rate (Pillar Two), hosted by Alison Lobb and is from our, The Digitalised Economy and Beyond series. During this webcast our panel of experts will discuss the recently agreed statement from the G20/OECD Inclusive Framework on the allocation of taxing rights between countries (‘Pillar One’) and the introduction of a global minimum tax (‘Pillar Two’) and how this may impact your organisation. To register for this webcast, click here. On Tuesday 20 July 2021, 14.00 BST/15.00 CEST, Demystifying The New UK Patent Box Regime is from our UK Tax Focus series, hosted by Sarah Lord. During the webcast our panel of experts will discuss the UK patent box regime - what the rules are, and how your organisation may be able to benefit from them. To register for the webcast, click here. And to view past webcasts on demand visit our website here.
Independent review recommends a salt and sugar tax
In June 2019, the Department for Environment, Food & Rural Affairs (Defra) commissioned an independent review to develop a National Food Strategy for England. On 15 July 2021, the review published its second of two reports, 'The Plan'. The review recommends that the government introduce a Sugar and Salt Reformulation Tax on the sugar and salt used in processed foods and catering (set at £3/kg tax on sugar and a £6/kg tax on salt). The review estimates that the new tax would raise about £3bn per annum, some of which would be used to subsidise fruit and vegetables for low-income families. The proposal resembles the current Soft Drinks Industry Levy and would include provisions to tax importers. The government has promised to respond to the report within six months.
GAAR Advisory Panel Opinions
On 14 July 2021, the GAAR Advisory Panel published three opinions (dated 11 May 2021): Rewards in the form of loans for employees including contributions to a trust. The three related opinion documents cover an employee reward arrangement including contributions to a trust, a loan agreement under which the employee loans money to the manager of the trust and loans from the manager of the trust to the employee. The GAAR Advisory Panel’s opinion was that entering into the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions.
Target Group: outsourced loan servicing is subject to VAT – Court of Appeal
Since the Court of Appeal’s judgment in EDS in 2003, HMRC have accepted that outsourced loan servicing is exempt from VAT provided that the servicer is involved in arranging the initial transfer of funds to the borrower. In Target Group, the Court of Appeal has endorsed this approach. Target provided a complete loan administration service to banks: processing loan repayments, contacting borrowers where necessary, calculating interest, and maintaining loan accounts. However, its involvement only started once the bank had made the loan. Target was not involved in originating the loan, and the Court of Appeal held that its other activities did not amount to exempt payment processing services in their own right. Target did not credit or debit accounts directly, and payments were executed by third parties (such as BACS) acting on its instructions, rather than by Target itself. Applying CJEU judgments such as DPAS, this was not an exempt payment processing service. The Court of Appeal also rejected Target’s arguments that it was providing transactions concerning debt (which might, in any event, have been taxable debt collection), and that it was operating bank accounts. Target’s appeal was dismissed. See here for more commentary.
Terminal Markets Order to apply to UK Emissions Trading Scheme
In a written ministerial statement, the government has confirmed that emissions allowances traded on the UK Emissions Trading Scheme (UK ETS) are covered by the Terminal Markets Order (TMO) (where the relevant conditions are met) and that legislation will be introduced to this effect. Market participants can bid for UK ETS allowances on a UK auction platform or can acquire futures contracts in UK ETS allowances on the secondary market. The zero-rating afforded to such trades under the TMO reduces the administrative burden while ensuring that the correct amount of VAT is collected at the final stage of consumption.