Business Tax Briefing

A weekly round-up of corporate, employment and indirect tax news

02/07/2021

OECD Inclusive Framework reaches political agreement on taxing the digitalised economy and a global minimum rate

Following a meeting of the Inclusive Framework, the OECD has announced that 130 jurisdictions have joined a Statement regarding agreement on the key components of changes to the international tax framework. The two-pillar approach, planned to apply from 2023, will include rules for nexus and profit allocation to market countries (Pillar One) and a global minimum level of tax (Pillar Two). For further details, see our alert.

Supreme Court upholds quashing of follower notice/accelerated payment notice

The Supreme Court has dismissed HMRC's appeal against the Court of Appeal's decision in R on the application of Haworth v HMRC. The issue is whether HMRC's issuing of a follower notice, and a subsequent accelerated payment notice (APN), was lawful. The background relates to 'Round the World' (RTW) tax arrangements, which typically involved transferring a trust, temporarily, to another jurisdiction such as Mauritius and taking advantage of the UK/Mauritius treaty. In 2010, HMRC were successful in an RTW case in the Court of Appeal - Smallwood v HMRC. Following the Smallwood case, HMRC's solicitor's office circulated internal advice on the factors which it considered would, if present in similar cases, lead to similar results. The High Court held that HMRC's actions complied with the legal framework on follower notices, and the notices were valid. The Court of Appeal held that, to give a follower notice, HMRC must be of the opinion that the principles or reasoning in the ruling in question would deny the relevant advantage, not merely that they would be more likely than not to do so. The Supreme Court has upheld the Court of Appeal’s judgment. The use of the word would indicates that HMRC must form the opinion that there is 'no scope for a reasonable person to disagree that the earlier ruling denies the taxpayer the advantage…. An opinion merely that is likely to do so is not sufficient.' The Supreme Court also held inter alia that HMRC had misdirected themselves in their analysis of Smallwood.

Subsidy Control Bill

The Subsidy Control Bill was published on 30 June 2021, together with explanatory notes. When the UK was a member of the EU, the UK followed the EU’s State aid regime which governed the awarding of subsidies, such as grants, loans and guarantees. The press release from the Department for Business, Energy and Industrial Strategy (BEIS) states that the new UK system will start from the basis that subsidies are permitted 'if they follow UK-wide principles [which will] allow public authorities to deliver subsidies where they are needed.' It goes on to say that 'The new system will prohibit the awarding of subsidies that will result in the relocation of jobs and economic activity from one part of the UK to another – known as ‘displacement’. Enforcement will be through the UK courts, with jurisdiction to judicially review the award of subsidies being given to the Competition Appeal Tribunal. The regime is due to come into effect in 2022. For further details see the Written Ministerial Statement by Secretary of State Kwasi Kwarteng and the policy papers published with the Bill.

Self-Employment Income Support Scheme: updated policy paper

HMRC have updated their policy paper on the Self-Employment Income Support Scheme (SEISS) fifth grant, first published on 2 June 2021. The paper now says that detailed guidance will be available 'from early July 2021' (previously 'by the end of June 2021').

Business Rates revaluations: consultation

The government has launched a consultation on making business rates revaluations more frequent. Under the proposals, revaluations of non-domestic properties would take place every three years instead of the current five. The consultation is part of the fundamental review of business rates which will conclude in the Autumn. Responses should be submitted by 24 August 2021 using the survey link here.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill had its second reading in the Commons on 28 June 2021. The Bill provides that the Insolvency Service is to be given powers to investigate directors of companies that have been dissolved. The dissolution process will no longer be able to be used as a method of fraudulently avoiding repayment of government backed loans given to businesses to support them during the COVID-19 pandemic. Extension of the power to investigate also includes the relevant sanctions, such as disqualification from acting as a company director for up to 15 years. Directors of dissolved companies will also be prevented from setting up a near-identical business after the dissolution, potentially leaving customers and other creditors unpaid. The Bill will also fulfil a commitment to rule out business rates appeals on grounds of a material change of circumstances where these are related to COVID-19. The second reading debate is here. A Public Bill Committee is scheduled to take oral evidence on the Bill on Tuesday 6 July and then consider the Bill line-by-line on Thursday 8 July.

Forthcoming Dbriefs webcasts

The next Dbriefs webcast is on Tuesday 6 July 2021, 12.00 BST/13.00 CEST. The title is Taking Action On Tax Evasion: Corporate Criminal Offence And Beyond from our UK Tax Focus series, and it will be hosted by Mark Kennedy. Our panel will discuss how, in the wake of COVID-19, ongoing business change and an evolving financial crime environment, many companies are refreshing their risk assessments and proportionate procedures to ensure they stay in line with the Corporate Criminal Offence legalisation. For more information, and to register for the webcast, click here.

There is a Dbriefs Legal webcast on Wednesday 7 July 2021, 14.00 BST/15.00 CEST. The title is Hybrid Working In A Post-COVID World and it will be hosted by Nicolaas Vermandel. Our panel of experts will discuss how, in a post-COVID world, having a legal framework for home working has become key in order for organisations to succeed. Our webcast explores what to consider when determining a a hybrid working plan for your business. For more information, and to register for the webcast, click here.

RCB 10(2021): repayment of VAT to overseas businesses not established in the EU

Overseas businesses that incur VAT in the UK for business purposes can reclaim the VAT using the overseas VAT refund scheme. To obtain VAT refunds for the year 1 July 2019 to 30 June 2020, businesses established outside the UK and EU were required to submit their application for refunds together with a certificate of status by 31 December 2020. HMRC previously granted a six month extension to submit the certificate. They are aware that some businesses are still experiencing difficulties obtaining the required certificate from their official issuing authorities due to measures taken in response to COVID-19. In RCB 10(2021), HMRC have therefore stated that they will allow businesses a further six months (until 31 December 2021) to submit a valid certificate of status.

X: VAT on commission due when property sale completed: Advocate General

In 2012, X GmbH arranged the sale of real estate in Germany belonging to T GmbH, for which it was paid €1m. Payment was spread over five equal annual instalments of €200k, and X considered that it should account for VAT when payment was received. However, in the Opinion of AG Maciej Szpunar, X had to account for VAT when its services completed. X could not invoke the rules on credit notes (as the agreement to pay by instalments did not modify what it was owed) or the rules on bad debt relief (as the consideration had not become irrecoverable) to defer the tax point. In the AG’s opinion, the rule prescribing that some services are completed when the period to which they relate expire (thereby deferring output tax) only applies when there would otherwise be uncertainty about the time of completion, and there was no such uncertainty here. The fact that X had to finance the VAT due on its services, as it would not be paid in full for several years, was its own commercial choice. Taxpayers cannot determine tax points simply by adjusting payment terms.