Business Tax Briefing

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


EU adopts Directive on public country-by-country reporting

On 11 November 2021, the European Parliament voted to approve the Directive for public country-by-country reporting in the EU. As a qualifying majority of the Member States approved the compromise proposal in September, the Directive has now been formally adopted. The Directive will require multinationals with worldwide revenues of more than EUR 750 million to disclose publicly, on a country-by-country basis, corporate income tax information relating to their operations in each of the 27 member states, as well as information for certain third countries on the EU list of non-cooperative jurisdictions. Both EU-parented groups and non-EU parented groups with large or medium-sized EU subsidiaries or branches will have reporting obligations. The reporting would take place within 12 months from the date of the balance sheet of the financial year in question. The Directive sets out the conditions under which a business may be able to obtain a deferral of the disclosure of certain commercially sensitive data for a maximum of five years. The Directive is due to enter into force in December (20 days after its publication in the Official Journal of the EU, expected shortly), after which Member States would have 18 months to transpose the Directive into national laws. Mandatory reporting under the Directive is expected to begin in circa 2025, but individual Member States have the option to implement the rules sooner. 

Finance (No 2) Bill: update

Written submissions on the Finance (No 2) Bill have been invited, to be sent to the Public Bill Committee which is going to consider parts of the Bill. The first sitting of the Committee is expected to be on Tuesday 14 December and the Committee must report by Thursday 13 January 2022. When the Committee concludes its consideration of the Bill, it is no longer able to receive written evidence. As it can conclude earlier than the expected deadline of Thursday 13 January 2022, and the Committee will not revisit Clauses/amendments once dealt with, any comments should be submitted as soon as possible.

The latest amendments for the Committee of the Whole House, scheduled for 1 December, are here. There are no new government amendments, besides the existing ones on diverted profits tax: closure notices. 

Judicial review challenge to the SEISS fails in Court of Appeal

The Court of Appeal has dismissed the claimants’ appeal against the judgment of the High Court in Queen on the application of The Motherhood Plan and another v HM Treasury, HMRC which rejected applications for judicial review challenging the Self-Employment Income Support Scheme (SEISS).  The claimants are a charity the aims of which include ending discrimination faced by pregnant women and mothers, and a self-employed energy analyst with three young children who took maternity breaks after the birth of her two youngest children in 2017 and 2018, with the result that her business income reduced significantly in 2017/18 and 2018/19. The claimants argued that the terms of the SEISS were discriminatory under the European Human Rights Convention, and that the Treasury had breached its Public Sector Equality Duty under the Equality Act. In the High Court, the judge held that the Treasury's decisions in designing the scheme were reasonable, especially when judged in context. She also held that there was no discrimination under the Human Rights Convention and that, even if there had been discrimination, it was legally justified. The Court of Appeal held that the High Court was wrong to find that the use of average trading profits in calculating SEISS grants did not constitute indirect discrimination in the case of new mothers. As to whether that discrimination was justified, since the time of the High Court judgment, the Supreme Court has established that a modified approach must be adopted in cases of indirect discrimination to 'reflect the nuanced nature of the judgment which is required'. However, the Court of Appeal was unpersuaded that that reformulation was material to how the issue had been approached by the High Court in this case. Even if it fell to the Court of Appeal to revisit the judge's assessment, they would come to the same conclusion that she had reached. 

State pension, benefit rates for 2022/23 confirmed

The Secretary of State for Work and Pension's annual review of state pensions and benefits was announced on 25 November 2021. It confirms that the state pension will be increased by 3.1% in line with the Consumer Price Index (CPI) for the relevant reference period (the year to September 2021). This means the basic state pension will increase to £141.85 per week and the full rate of new state pension will increase to £185.15. All other benefits will also be increased in line with CPI of 3.1%. 

House of Commons Library: Autumn 2021 Budget: basis period reform

Following a consultation this summer, the government announced in the Autumn Budget plans to reform the basis period rules with effect from 6 April 2024. The House of Commons Library has published a Research Briefing on the changes, which are contained in Clauses 7 and 8 of the Finance (No 2) Bill. 

New advisory fuel rates from 1 December 2021

HMRC have announced new advisory fuel rates from 1 December 2021. The previous rates from 1 September 2021 can be used for up to one month from the date the new rates apply. Compared to the previous rates, some of the rates have increased by one, two or three pence. 

Forthcoming Dbrief

The next Dbriefs webcast is on Thursday 2 December 2021, 12.00 GMT/13.00 CET and is from our Transfer Pricing series. The title is Developing Your Transfer Pricing Controversy Strategy – Competent Authority (MAP and APA) and it will be hosted by Edward Morris. During the webcast our panel will discuss what your organisation should be thinking about in relation to transfer pricing controversy strategy, exploring how MAP reforms could benefit you and when the use of an APA could be beneficial. To register, please click here

VAT: determining usual residence: Upper Tribunal

Mandarin Consulting Ltd provided soft skills coaching to students of Chinese origin looking for job opportunities in major international companies. Following a decision of the First-tier Tribunal, Mandarin accepted that it had provided consultancy services (rather than education) to the students (rather than to their parents). However, the correct VAT treatment still depended on where the students were usually resident. Regulation 282/2011 specifies that a supplier should establish residence based on factual information provided by the customer, and verify that information by normal commercial security measures. However, the Upper Tribunal has ruled that the Regulation overlaid, but did not replace, the place of supply rules in the Principal VAT Directive. A supplier might be well advised to check that it satisfied the Regulation’s requirements, but if it could not do so (like Mandarin) then it was still entitled to demonstrate its customer’s usual residence by reference to a multi-factorial test. Unfortunately for Mandarin, the evidence that it had collected was too general, and did not establish that the students were usually resident in China at the time of supply. The Upper Tribunal therefore found in favour of Mandarin on a point of principle, but remade the decision in favour of HMRC based on the particular facts of the case. 

VAT recovery on motor racing advertising: CJEU

Amper Metal Kft paid €133k plus VAT to have a small logo displayed on cars at a Hungarian motor racing championship. Amper could recover the VAT if it ‘used’ the advertising for business purposes. However, the Hungarian tax authorities considered that Amper Metal did not have a proper business reason for advertising through motor racing, as its clients were paper factories which were unlikely to be influenced by such channels. Furthermore, the authorities did not see the advertising as useful, as it did not help increase Amper’s turnover, and it had been significantly over-priced. The CJEU has ruled that input tax recovery was possible if the advertising could be objectively linked to Amper’s business activities. The mere fact that the advertising did not work, or was too expensive, could not justify an input tax restriction. However, the CJEU indicated that the referring court should consider whether the advertising represented a luxury, amusement or entertainment. If so, then Amper would be unable to recover the VAT even if a direct link could be established.