14 February 2025
Supreme Court dismisses appeal on the treatment of oil payments under UK-Canada treaty
The Supreme Court has dismissed HMRC’s appeal in the tax treaty case of Royal Bank of Canada (RBC). The case concerned whether the UK had the right to tax contractual payments received by RBC – a Canadian resident company – pursuant to rights it acquired following the receivership of a Canadian oil and gas corporation (Sulpetro Canada). Sulpetro Canada had obtained those rights, comprising payments linked to subsequent oil production in the UK, as consideration in connection with the disposal of its shares in and agreements with a UK subsidiary (Sulpetro UK) that held the government licence to extract oil from the Buchan field in the UK continental shelf.
The taxpayer argued that, as RBC was not UK resident and did not have a UK permanent establishment, the Canada-UK Double Taxation Convention gave exclusive rights to taxation of the income to Canada. HMRC, however, argued that Article 6 (Income from immovable property) applied, in particular the reference in Article 6(2) to consideration for “the right to work, mineral deposits, sources and other natural resources”. By a majority of four to one, the Supreme Court agreed with the taxpayer. The majority considered that, based on the facts of the case and the wording of the treaty, Sulpetro Canada never had the requisite ‘right to work’ the field. Lord Briggs, dissenting, argued for a broader interpretation of the article. In his view, the commercial arrangements between the licence holder Sulpetro UK and Sulpetro Canada, viewed realistically and in the round, had granted the Sulpetro Canada a right to work that was within the scope of Article 6(2).
The Supreme Court also considered whether, if its majority holding on the treaty position were wrong, the payments would have been within the scope of UK corporation tax under domestic law. The Court unanimously agreed that section 1313 Corporation Tax Act 2009 was drafted widely enough to mean the payments would have been subject to UK corporation tax had there been no treaty protection.
Government launches consultation on electronic invoicing
On 13 February 2025, HMRC and the Department for Business and Trade (DBT) opened a consultation titled Electronic invoicing: promoting e-invoicing across UK businesses and the public sector. The government considers that increased uptake of e-invoicing may improve productivity, improve cashflow, simplify tax reporting, and reduce the tax gap. Accordingly, the government is looking to explore the options for different models of e-invoicing and government involvement to encourage uptake.
At present there are no required standards for e-invoicing (except for suppliers to NHS England). The consultation notes that for e-invoicing to be beneficial, all systems would need to be able to interact with each other, based on common standards. The consultation asks for views on how standards could be used to support e-invoicing adoption and potential benefits, but at this stage the government is not looking to identify specific standards for adoption. It also asks for feedback on whether e-invoicing should be voluntary or mandatory. The consultation makes it clear that the government is not seeking to implement a centralised e-invoicing model which would require suppliers to submit and validate invoices to a centralised platform before they are issued to the customer. It does, however, note the possibility of implementing a centralised data share model which would require suppliers to issue invoices to a central platform, thereby allowing HMRC the ability to read and extract transaction details, as well as allowing customers to receive and process e-invoices.
In addition to the consultation, the government will hold business round tables and other events to enable stakeholders to contribute to future policy development in this area. If there is a decision to proceed with the introduction of a standard for e-invoicing, there is a commitment to work with businesses and representative organisations, including the software and accounting sectors. The consultation is open until 7 May 2025. (Contact: Giuseppe Ciampa)
Freeports and Investment Zones – postcode information to be required in RTI returns
HMRC have made the Social Security (Contributions) (Amendment) Regulations 2025 (SI 2025/144). The regulations relate to the relief from employer Class 1 National Insurance Contributions available in respect of certain employees working in designated Freeport or Investment Zone tax sites. The regulations will require employers claiming this relief to include postcode information for the workplace of the relevant employees in PAYE Real Time Information (RTI) returns from 6 April 2025. HMRC have separately published an explanatory memorandum and tax information note for the regulations.
National Audit Office publish report on the administrative cost of the tax system
The National Audit Office (NAO) has published a report on the administrative cost of the UK tax system. The report finds that HMRC’s own costs of tax collection have increased by 15% in real terms between 2019-20 and 2023-24. In the NAO’s view, this is partly due to rising complexity in the different tax regimes and taxpayer numbers, but also due to the additional cost of introducing and remediating digital systems, and moving to a more highly-skilled workforce. The NAO considers that there is scope for increased efficiency and productivity, and higher returns should be achievable given HMRC’s investment in more highly-skilled staff and digital systems. It also considers that HMRC has rightly identified that simplification, automation, upfront compliance activity and better working with tax intermediaries will help to reduce its costs, and the report includes recommendations on how to proceed.
The report also examines the cost burden on taxpayers, finding that there is evidence that the tax system is imposing increased administrative burdens on taxpayers, despite the availability of digital channels. The NAO believes that HMRC’s estimated £15.4 billion annual cost to businesses for tax compliance is likely to be an understatement. It recommends taking a more holistic view of the cost-effectiveness of the tax system: clarifying estimated costs and benefits when placing increased requirements on taxpayers and, where appropriate, spending more when this reduces the overall cost of the system.
EMEA Dbriefs webcasts
On Wednesday 19 February 2025 at 12.00 GMT/13.00 CET, there will be a webcast from our global mobility and employment taxes series titled Future changes which impact the use of umbrella companies – what should you know and do next. Hosted by Rich Barrett, our panel will discuss the government’s Autumn Budget 2024 announcements on tackling non-compliance in labour supply chains involving umbrella companies, that from April 2026 is expected to move responsibility for PAYE and NIC non-compliance from umbrella companies to end clients or recruitment agencies.