Business Tax Briefing

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

22/01/2021

OECD updated analysis of tax treaties and the impact of COVID-19

The OECD has published updated guidance on tax treaties and the impact of the COVID-19 pandemic. The guidance considers the interpretation of tax treaty provisions on the creation of permanent establishments, the tax residence of companies and individuals, and the taxation of income from employment. This revisits and updates the guidance issued by the OECD Secretariat on 3 April 2020. Our alert on the updated guidance is available here

Freeports: HM Treasury clarification document  

As previously reported, HM Treasury published its Freeports bidding prospectus on 16 November 2020. The prospectus gives guidance for bidders competing for Freeport status in England, and gives additional detail on the UK’s Freeports model, including how Freeport incentives relating to customs, tax, planning, regeneration and innovation will work. The prospectus also explains how Freeports should be delivered, and provides details of the selection process. HM Treasury has this week published a Freeports Clarification Q&A document. Much of the tax and customs related content is intended to assist potential bidders in deciding on the size, shape and location of areas to be proposed as 'customs sites' and/or 'tax sites'. There are also questions on customs procedures and operators, and others on which businesses and investments would be eligible for tax reliefs. As previously announced, bidders in England who wish to apply for Freeport status should complete this form by 5 February 2021. Successful Freeport locations will be announced in the spring.

UK/Germany double tax convention: protocol, declaration

A new protocol to the 2010 UK/ Germany double tax convention was signed in London on 12 January 2021.  The protocol will enter into force when both countries have completed their legislative procedures and exchange diplomatic notes. The protocol will make BEPS-related changes to the 2010 double tax convention, for example by introducing a principal purpose test article and a permanent establishment anti-fragmentation rule.  Such changes could have been made via the BEPS multilateral instrument (the BEPS MLI), but Germany and the UK have chosen to make them bilaterally. The protocol does not make any changes to the 2010 convention’s withholding tax rates. However, a joint declaration by Germany and the UK was also signed on 12 January 2021. This records that the German and the UK governments are willing to enter into negotiations for further amendments to the convention by the end of 2021.   

COVID-19: support for company directors in Northern Ireland

Economy Minister in the Northern Ireland Assembly Diane Dodds has announced a scheme to provide support for directors of companies based in and operating in Northern Ireland affected by the COVID-19 pandemic. The Limited Company Directors Support Scheme (LCDSS) will provide an initial one-off taxable grant of £1,000 to eligible company directors who meet the scheme’s criteria. The scheme has a budget of £20 million. At the closure of the LCDSS, any underspend will be distributed equally amongst approved applicants in the form of a top-up grant, up to a maximum of £3,500. The scheme opened for applications on Thursday 21 January.

BEPS MLI: Estonia deposits instrument of ratification

Estonia deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the BEPS multilateral convention or the BEPS MLI) with the OECD on 15 January 2021. Estonia's finalised list of reservations and notifications is here. There is a list of all countries' provisional or ratified MLI positions as at 15 January 2021 here.

Forthcoming Dbriefs webcasts

The next Dbriefs webcast is on Wednesday 27 January 2021, 12.00 GMT/13.00 CET. The title is SAP S/4HANA®: Operational Transfer Pricing, hosted by Martin Krivinskas, from our SAP S/4HANA® series. During the webcast our panel will discuss the SAP S/4HANA opportunities for transfer pricing, and how to ensure your organisation is using the system and process solutions that are fit for purpose. To register, please click here.  There will be another Dbriefs webcast, this one from our International Tax series, on Thursday 28 January 2021, 12.00 GMT/13.00 CET, hosted by Kate Ramm. The title is Digital Services Tax – UK, Spain, Italy and Africa Latest Developments. The panel will discuss the Digital Services Tax rules for Italy, Spain, the UK and those emerging in Africa, together with the forthcoming payment and filing deadlines. For more information, and to register for the webcast, please click here.  

Public Accounts Committee report on HMRC's performance 2019–20

The Commons Public Accounts Committee (PAC) has published its report on HMRC's performance 2019–20. There is a summary of the report’s conclusions and recommendations here. Some of these relate to gaps in the government’s COVID-19 support schemes and how these might be remedied, while some are concerned with other current and future issues arising from the COVID-19 pandemic, including the effect on HMRC’s workload and organisation. The PAC is concerned inter alia that ‘quirks’ in the tax system have left some groups of taxpayers excluded from the financial support for which other taxpayers qualified. The Committee has asked that HMRC publish within the next six weeks an explanation as to why the groups excluded from support cannot he helped, what would be required to determine eligibility for financial support for those groups and what support can be provided for taxpayers that have moved onto payrolls due to the IR35 rules and have therefore failed to qualify for help from the support schemes. There is also concern that lack of certainty about the support schemes has undermined businesses’ ability to plan effectively.

Repaying any VAT deferral: guidance updated

HMRC have updated their guidance relating to the COVID-19 VAT deferral. The ability to repay the deferral by instalments is no longer conditional on an ability to pay by direct debit, and the first instalment must be paid when businesses opt in to the new payment scheme (not by 31 March, as before). If there was an error in a VAT return covered by the deferral, then any additional payment (whether recognised by assessment or notice of error correction) can be included in the instalment plan, but only if the business contacts HMRC by 29 January. The guidance indicates that it may not be possible to include additional payments in the instalment plan if they are not shown on the business' statement of account by that deadline.

VAT on royalty payment:  CJEU

UCMR-ADA is a collective management organisation (CMO) which granted a licence to the Romanian Soul cultural organisation to perform some music at a show. UCMR had to pursue Romanian Soul through the courts for payment of royalties, and at the conclusion of the case there was disagreement over whether VAT should be added to the amount awarded by the court. This is an example of a situation when the amount awarded might be referred to as compensation or damages, but in VAT terms it simply represents consideration for a supply. The CJEU has established that the copyright owner, through UCMR, granted a non-exclusive licence for the music to be performed in return for payment of the royalties, and this supply was subject to VAT. UCMR, which did not own the copyright itself, was acting as an undisclosed agent on behalf of the copyright holders. It should therefore be deemed to have received the licence and supplied it to Romanian Soul, which should pay VAT.

COVID-19: help and information

To help inform our clients and to enable them to understand how businesses can respond, recover and thrive in these times we are running a series of webinars focused on the economy, on particular sectors and on key roles within an organisation. You can register for future webcasts and view archived webcasts here. You can access more information here and also at our Deloitte global COVID-19 webpage. You can also sign up to our Deloitte Tax Atlas COVID-19 Tax and Fiscal Measures microsite, which provides a high-level summary of tax and fiscal coronavirus measures that have been announced by governments, and our COVID-19 Signal Topic email alerts, here.