13 September 2024
HMRC publish transfer pricing guidelines for compliance
As the seventh in their series of ‘Guidelines for Compliance’, on 10 September 2024 HMRC published Help with common risks in transfer pricing approaches (GfC7). The new guidance sets out a number of points and potential pitfalls for businesses to consider when analysing their transfer pricing outcomes, and offers best practice recommendations to help businesses with their UK transfer pricing compliance. The guidance does not relate to any change to UK transfer pricing law or HMRC policy on transfer pricing. For more details, please see Deloitte’s alert.
An EMEA Dbriefs transfer pricing webcast to discuss the guidelines will be held on 3 October 2024 at 12.00 BST/13.00 CEST. For more information and to register visit here.
HMRC consulting on further draft UK Pillar Two guidance
On 12 September 2024, HMRC published further draft manual guidance on multinational top-up tax and domestic top-up tax, the UK’s implementation of an income inclusion rule and a qualified domestic minimum top-up tax under the OECD Inclusive Framework’s Pillar Two global minimum tax rules. The draft guidance follows earlier releases of draft guidance issued in June 2023 and December 2023. HMRC are inviting feedback on the draft guidance by 23 October 2024.
Muller: Upper Tribunal dismisses taxpayers’ appeal on partnership and intangible fixed assets
The Upper Tribunal has dismissed the taxpayers’ appeal in Muller UK & Ireland Group LLP and others v HMRC. In 2013, three UK resident companies incorporated a limited liability partnership (LLP) and transferred their trades and certain assets to it. HMRC disputed whether intangible assets and goodwill transferred to the LLP should, as the taxpayers contended, be treated as falling within the intangible fixed assets regime of Part 8 Corporation Tax Act 2009 for the purposes of calculating the taxable profits attributable to each member of the LLP. This required consideration of the general rules for calculating the taxable profits arising to corporate partners from a trade carried on by a partnership – which requires computation of the profits as if a notional company were carrying on the same trade – and how the notional company concept interacted with Part 8 and in particular its rules on assets acquired from related parties.
The Upper Tribunal agreed with the 2023 decision of the First-tier Tribunal (FTT), holding that the absence of specific words treating the notional company as having the ownership attributes of the relevant partnership did not mean that the key related party provisions in the intangible fixed asset rules were incapable of applying. The Upper Tribunal agreed that, in order to calculate taxable profits, it was necessary to attribute the partnership’s ownership characteristics to the ownership of the notional company. Applied to the facts in this case, this meant each corporate member was to be considered a “related party” of the notional companies, and accordingly, the assets transferred remained outside of the scope of Part 8.
Amendments to Part 8 were made by Finance Act 2016 to clarify the rules in relation to transfers involving partnerships. As at the FTT, the Upper Tribunal also considered and dismissed separate taxpayer arguments that these amendments were either ineffectively drafted and/or did not affect debits arising in respect of assets transferred prior to the effective date of the change in the law.
Budget Responsibility Act 2024 – Royal Assent
One of the first bills introduced by the new government in July 2024 was the Budget Responsibility Bill, intended to ensure that all ‘fiscally significant’ permanent tax or spending change announcements made by governments will be subject to an independent assessment by the Office for Budget Responsibility (OBR). Having completed its House of Commons stages last week, the bill completed its House of Lords stages on Monday and it has now received Royal Assent. No amendments were made by either House and the enacted text of the Budget Responsibility Act 2024 is available here.
Joined Dutch cases on VAT treatment of pension fund management – CJEU
In a joined judgment, the Court of Justice of the European Union (CJEU) has considered whether a number of Dutch pension funds qualified as ‘special investment funds’ (SIFs), in which case, management of those funds would be exempt from VAT. The CJEU has previously ruled that pension funds comparable to an undertaking for collective investment in transferable securities (UCITS) will qualify as a SIF. One of the characteristics previously described as being required for a fund to be comparable to a UCITS was that members must bear investment risk, but what had not previously been examined was to what extent that investment risk had to be borne by the investors. In the pension funds in question in this case, the benefits under the pension funds were largely based on members’ salaries and periods of employment service. However, the expected amount was not guaranteed, as it was influenced by investment returns – effectively falling somewhere in-between a defined benefit and a defined contribution fund.
The CJEU has now held that to be comparable to a UCITS, the degree of investment risk borne by the members must be comparable to the investment risk borne by an investor in a UCITS; specifically, the benefits a member can expect to receive must depend primarily on investment performance. It now falls to the national court to assess whether the members of a pension fund bear a sufficient degree of investment risk to be comparable to a UCITS. The CJEU also held that according to the principle of fiscal neutrality it is necessary to consider not only whether a pension fund is comparable to a UCITS, but whether it is comparable to other funds that are not UCITS but are considered to be SIFs by the EU member state concerned.
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax and legal webcast is on Thursday 19 September 2024 at 13.00 BST/14.00 CEST. A year of Global and US Governmental change - considerations for global mobility, hosted by Katrina Cooper, will look at the upcoming elections in the United States, along with other major elections around the world in 2024, and how these may affect global mobility programmes. Our panel of immigration experts will provide practical tips and strategies for managing mobility programmes in a rapidly-changing political landscape.