End of the transition period
With only days left before the end of the Transition Period, the UK and the EU agreed the terms of a future economic partnership in the EU-UK Trade and Cooperation Agreement. The UK passed the Taxation (Post-transition Period) Act 2020, the EU (Future Relationship) Act 2020, and the UK Internal Market Act 2020. Appointed Day Orders brought parts of the Taxation (Cross-border Trade) Act 2018 into effect, as well as a raft of Statutory Instruments. You can read Deloitte’s analysis here. Our comments on the tax-related provisions are here, on the trade in goods here and on social security co-ordination here.
DAC6 changes in the UK
The government has announced changes on the implementation of DAC6 (disclosure of certain cross-border arrangements) in the UK. Under the terms of the EU-UK Trade and Cooperation Agreement, the UK must not reduce the level of protection in its legislation in relation to, inter alia, the exchange of information concerning potential cross-border tax planning arrangements below the level of protection afforded by the OECD’s Mandatory Disclosure Rules (MDR). The government has legislated to restrict reporting only to those arrangements which would be reportable under Hallmark D of DAC6 (undermining or circumventing automatic exchange of financial account information, and using non-transparent legal or beneficial ownership chains). HMRC have confirmed that this change applies to historical arrangements as well as to future arrangements. In the coming year, the UK will consult on and implement the OECD’s MDR as soon as practicable to replace DAC6.
OECD guidance: transfer pricing COVID-19
COVID-19: new top up grants for retail, hospitality and leisure businesses
Following the announcement on 5 January 2021 of the third national COVID-19 lockdown in England, and of similar measures by the devolved administrations, the Treasury has announced new grants for retail, hospitality and leisure businesses in England. Any business which is legally required to close, and which cannot operate effectively remotely, is eligible for a one-off grant ranging from £4,000 to £9,000 depending on the rateable value of property. This is in addition to existing support grants and business rates relief. Corresponding amounts have been made available to the devolved administrations to support businesses in Scotland, Wales and Northern Ireland.
Repaying business rates relief: tax deductibility
HM Treasury has published guidance to businesses on how to repay any business rates relief received in 2020-21 if they should wish to make a repayment. Different processes apply for England, Scotland, Wales and Northern Ireland. The government will legislate so that repayments are deductible for tax purposes.
The government also intends to specify the timing of the deduction as being the same period the original payment of business rates would have related to.
Preference shares: definition of ‘ordinary share capital’: Upper Tribunal
The Upper Tribunal has dismissed HMRC’s appeal against the decision of the First-tier Tribunal in Stephen Warshaw v HMRC in which the First-tier Tribunal held that the taxpayer, Mr Warshaw, was entitled to entrepreneurs’ relief (since renamed ‘business asset disposal relief’) on a disposal of shares. The issue was whether certain preference shares held by the taxpayer were ‘ordinary share capital’ as defined by ITA 2007 s 989. If so, the company concerned would have been his ‘personal company’, and the taxpayer would be entitled to relief on the disposal of his shares. Preference shares with a right to dividends at a fixed rate are excluded from the statutory definition of ‘ordinary share capital’. However, as the cumulative preference shares held by Mr Warshaw carried a compounding right for unpaid dividends, the Upper Tribunal agreed with the First-tier Tribunal that the rate was not fixed and that the shares therefore counted as ‘ordinary share capital’.
BEPS MLI: Germany, Pakistan, Barbados deposit instruments of ratification
Germany and Pakistan deposited their instruments of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the BEPS MLI) with the OECD on 18 December 2020. Germany’s finalised list of reservations and notifications is here. Pakistan’s finalised list of reservations and notifications is here.
Barbados deposited its instrument of ratification with the OECD on 21 December 2020. Its finalised list of reservations and notifications is here. A list of all countries' provisional or ratified MLI positions as at 21 December 2020 has also been published.
Forthcoming Dbriefs webcasts
The next Dbriefs webcast is on Tuesday 12 January 2021, 13.00 GMT/14.00 CET. The title is COVID-19 And Transfer Pricing – OECD Guidance and it is from our Transfer Pricing series, hosted by Alison Lobb. During the webcast our panel will discuss the newly-released OECD guidance on the practical application of the arm’s length principle to issues that may arise from, or be exacerbated by, the COVID-19 pandemic, including the allocation of COVID-19 specific costs, the effect of government-led assistance programmes, and Advance Pricing Agreements. To register for the webcast, click here.
There is another webcast on Wednesday 13 January 2021, 12.00 GMT/13.00 CET. The title is SAP Tax Compliance from our SAP S/4HANA® series, hosted by Andreas Kowallik. Our panel will discuss SAP Tax Compliance and how it can be used to efficiently check transactions, together with a look at its functionality for audit defence and workflow management purposes. To register for the webcast, click here. You can view past webcasts on demand here.
Revenue and Customs Brief 1(2021): tampon tax abolished
As set out in Revenue and Customs Brief 1(2021), FA 2016 provided that a new zero rate should apply to women’s sanitary products in place of the 5% reduced rate, from the earliest date that was consistent with the UK’s EU obligations. Article 3 of SI 2020/1642 has now brought this into effect from 1 January 2021. HM Treasury’s press release notes that this only became possible when the end of the Transition Period meant that the UK was no longer bound by the Principal VAT Directive. The government has been ring-fencing VAT on sanitary products for several years and allocating it to the Tampon Tax Fund. The new zero rate, although welcome in its own right, may not lead to widespread acceptance of many of the other requests for new or extended zero rates that have been submitted to the government since the Brexit process began. (Contact: Chris Cherrill).
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.