Not announced, but stated clearly in the Autumn Statement, the government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.
We mention in our interest restriction article, that this is, in our view, likely to be the way the government envisage effectively extending the interest and loss restrictions due to be introduced in April next year e.g. to non-resident landlords. The provisions, however, go further than that and could provoke a fundamental change to the status quo.
They could bring other types of income within the corporation tax net e.g. trading income (not just in land, which is already now subject to corporation tax) and interest, royalties etc.
It seems also to do away with the need to have a permanent establishment in order to be able to levy a corporation tax charge where there is trading in the UK.
Double tax treaties ought still to prevail, but of course, not all investors are eligible to claim double tax treaty relief.
Given the high-level nature of today’s statement, we look forward to receiving clarification of the scope of the proposed new corporation tax charge. For example, the wording of the statement indicates that the government is only seeking to catch UK income and not gains, but express confirmation on this point would be helpful.
These measures could have far reaching implications and affected businesses should consider the consultation carefully.