On 11 March, the UK Chancellor, Rishi Sunak, delivered the 2020 UK Budget. There were a number of proposed changes that will be of interest from an international tax perspective, with many of these focused on anti-avoidance measures.
Some of the key announcements include:
Digital Services Tax will go ahead on 1 April 2020
The UK will introduce its Digital Services Tax (DST) on 1 April 2020 as planned. The DST will apply to social media platforms, internet search engines, online marketplaces and associated online advertising businesses with worldwide revenues from these activities that exceed £500 million. Revenues attributable to UK users in excess of £25 million will be taxed at a rate of 2%(although there will be an alternative method of calculation for groups will low profit margins).
The Government has reiterated its commitment to developing a multilateral solution to the challenges that digitalisation has created for the corporate tax system and will repeal the DST once an appropriate global solution is in place. The OECD’s Pillar 1 and Pillar 2 process is intended to be completed by the end of 2020, so the DST may be short-lived.
Intangible fixed assets
The UK’s intangible fixed assets (IFA) regime that applies to intellectual property and goodwill distinguishes between IFAs created before and after April 2002. Broadly speaking, corporation tax relief is currently only available for IFAs created, or acquired from an unrelated party, on or after 1 April 2002.
However, the position will change on 1 July 2020, and corporation tax relief will be available for the cost of acquiring pre-April 2002 IFAs on or after this date from related parties that are outside the scope of UK corporation tax, subject to restrictions to prevent tax avoidance. This is a change that is likely to be welcomed by groups with significant intellectual property and/or goodwill.
New HMRC notification requirement for large businesses
The Government has announced its intention to consult on a new requirement for large businesses to notify HMRC when they “take a tax position which HMRC is likely to challenge”. This notification obligation is expected to take effect from April 2021, and there is no further information available at this stage other than a statement that this policy will draw on international accounting standards.
A consultation will be released shortly, which should provide further information, although businesses are unlikely to welcome this additional requirement at a time when they are coming to terms with the new DAC6 regulations.
Corporation tax rate to be kept at 19%
The Government has confirmed its intention to maintain the current corporation tax rate of 19%. The rate had previously been due to fall to 17% from April 2020.
Review of the UK funds regime
The Government has announced a review of the UK funds regime. This will cover direct and indirect taxes and relevant areas of regulation with a view to considering the scope for policy changes to make the UK a more attractive location for the intermediate entities through which alternative funds (such as credit, real estate and private equity funds) hold assets.
Separately, the Government will also consider the VAT treatment of fund management fees.
There were a number of other announcements that were made as part of the Budget, including:
- A consultation on the hybrid mismatch rules to ensure that the rules work proportionately and as intended, although no further information has been released on this yet;
- A discussion document will be published seeking views on restricting access to government awards and authorisations (such as approvals, licenses and grants) to businesses that can demonstrate good tax compliance;
- A working group to be set up to review how financial services are treated for VAT purposes;
- A consultation on the significant tax issues that arise from the reform of LIBOR and other benchmarks; and
- Confirmation that a new 2% stamp duty land tax surcharge will apply to non-UK residents acquiring residential property in England and Northern Ireland from 1 April 2021.