On November 22, 2017 the UK Chancellor of the Exchequer delivered his Autumn Budget 2017 to the UK Parliament. Below we will shortly discuss a selection of measures that were announced in the Autumn Budget 2017 of which we think our readers might be interested in.

 

Corporation Tax: capital gains depreciatory transactions within a group

 

Who is likely to be affected

Any company that disposes of shares in a subsidiary company more than 6 years after a transaction that has materially reduced the value of those shares.

 

General description of the measure

This measure removes the time limit of 6 years for which a company must look back and adjust the capital loss claimed on sale of shares in a subsidiary company to account for earlier depreciatory transactions that have materially reduced the value of those shares.

 

A depreciatory transaction is one that takes value out of shares, which might be by transferring the assets of a company to another company within a group for no or little cost. This reduces the value of the shares but without any economic loss to the group. When the shares are disposed of (by liquidating the company or making a negligible value claim), the legislation requires that previous depreciatory transactions are adjusted for in computing any loss on disposal. Currently there is a time limit of 6 years, so that depreciatory transactions before that are not taken into account. Removal of the 6 year rule means that companies will need to consider the history of the shares and will be required to adjust for any prior depreciatory transactions when calculating a loss.

 

This measure will ensure companies cannot prevent the depreciatory transaction rules applying by simply holding onto a company that no longer has any value for 6 years before claiming an inflated amount of loss relief.

 

Operative date

The measure will have effect for disposals of shares in, or securities of a company made on and after November 22, 2017.

 

For assets that are of negligible value, the commencement rule will apply to the date that the claim is made and not any earlier date that might be specified.

 

Current law

Current law is in section 176 Taxation of Chargeable Gains Act (TCGA) 1992 and Schedule 9 to Finance Act 2011.

 

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 to remove the 6 year rule in section 176(1) of TCGA 1992, returning the statute to how it operated prior to the changes made by section 44 and Schedule 9 of FA 2011.

 

More information on this measure can be found here.

 

Corporation Tax: double taxation relief and permanent establishment losses

 

Who is likely to be affected

Companies with an overseas permanent establishment (PE) where losses of the PEhave been relieved against non-PE profits in the foreign jurisdiction.

 

General description of the measure

The measure restricts the amount of credit allowed or deduction given in the UK for foreign tax suffered by a company with an overseas PE where losses of the PE have been set off against profits other than of the PE in the foreign jurisdiction.

 

Operative date

These changes will have effect for accounting periods ended on or after November 22, 2017 with a transitional rule applying where the accounting period straddles November 22, 2017.

 

Current law

Part 2 of Taxation (International and Other Provisions Act) 2010 (TIOPA 2010) sets out rules allowing foreign tax to be credited against UK tax in certain circumstances.

 

The overarching principle of the DTR rules is that relief is allowed against UK tax on the same income or gain on which foreign tax has been suffered.

 

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 to include a new section 71A in Part 2 of TIOPA 2010 to restrict the amount of credit allowed or deduction given for foreign tax where the company has received relief for losses against non-PE profits in the foreign jurisdiction.

 

The amount of double taxation relief available will instead be determined by reference to the amount of foreign tax suffered by the overseas PE, less the amount of the reduction in foreign tax which results from the PE’s losses being relieved against non-PE profits in a foreign jurisdiction in the same or earlier periods.

 

More information on this measure can be found here.

 

Corporation Tax: intangible fixed assets - related party step-up schemes

 

Who is likely to be affected

Companies liable to Corporation Tax disposing of intangible fixed assets for consideration other than cash, and companies entering into licensing arrangements with related parties in relation to intangible fixed assets.

 

General description of the measure

This measure clarifies the tax treatment of a disposal of a company’s intangible fixed assets involving non-cash consideration.

 

The measure also amends the rules in relation to licences in respect of intangible fixed assets granted by or to a company where the other party to the licence is a related party.

 

Operative date

The measure will have effect for all transactions made on or after November 22, 2017.

 

Current law

Current law in relation to transfers of intangible fixed assets between related parties is contained in Chapter 13 of Part 8 Corporation Tax Act 2009 (CTA 2009).

 

Current law in relation to realisations of intangible fixed assets is contained in Chapter 4 of Part 8 of CTA 2009. These two Chapters broadly expect the profit or loss on the disposal of an intangible fixed asset to be computed by reference to the proceeds of realisation for accounting purposes. In a cash transaction this would generally be the amount actually received, subject to any arms-length or market value adjustment.

 

The market value rule requires that where an intangible fixed asset is transferred between related parties the amount recognised is equivalent to the amount of cash that would be received if the transaction was at market value. The transfer pricing legislation in Chapter 1 of Part 4 of Taxation (International and Other Provisions) Act 2010 (TIOPA) will generally take priority over the market value but is similar in effect in applying the arms-length principle to a transaction.

 

Legislation was introduced by section 42 Finance (No. 2) Act 2015 (amending section 846 of CTA 2009) to counter step-up scheme avoidance in relation to transfers of intangible fixed assets.

 

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 to ensure that the market value rule can apply to an intangible fixed asset licence granted between related parties. This extends the provisions introduced by section 42 of Finance (No.2) Act 2015 that countered step-up scheme avoidance involving net book value accounting transfers.

 

A licence does not involve a transfer of the underlying asset. The asset that is subject to the licence will be retained by the licensor. The proposed revision ensures that a licence granted between related parties will also be subject to the market value rule as it applies to transfers. A company making a disposal by way of a grant of a licence to a related party will be prevented from recognising less than the market value of the licence. This will ensure the correct tax is paid on the grant of a licence to a related party. And for licensees who are granted a licence by a related party the market value rule will also prevent the company recognising a tax cost higher than the market value of the licence. Amendments to the market value rule will therefore prevent manipulation of the transaction price in relation to related party licences to avoid unfair tax advantages.

 

The proposed revisions will also confirm that the proceeds of realisation for accounting purposes within Chapter 4 of Part 8 of CTA 2009 should recognise the market value of any non-cash consideration (non-cash consideration includes anything received other than cash, typically such arrangements include consideration paid in other assets such as shares). This clarification applies to all disposals, not just licensing arrangements, and ensures transactions other than cash are treated similarly to a cash transaction.

 

More information on this measure can be found here.

 

VAT: Extending joint and several liability for online marketplaces and displaying VAT numbers online

Who is likely to be affected?

·   This new legislation will affect:  UK and overseas businesses selling goods in the UK to UK consumers via online marketplaces.

·   Online marketplaces that control and support the sale of such goods by any business through their marketplace.

 

There are 3 elements to this announcement which take effect from Royal Assent in 2018:

(i)   The first measure will extend the existing joint and several liability provision for online marketplaces to cover all businesses that should be registered for VAT in the UK (including UK businesses). This will address non-compliance by UK businesses and encourage them to register for VAT when they need to and pay the VAT due on their sales.

(ii)  The second measure further extends joint and several liability for online marketplaces in relation to overseas businesses where the online marketplace allows an unregistered overseas business to sell goods through its marketplace when it knew or should have known that the overseas business should be VAT registered.

(iii) The third measure ensures that VAT numbers given to online marketplaces by any business selling goods in the UK via online marketplaces are displayed on that online marketplace and are valid.

 

More information on this measure can be found here.

 

 

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