In what was in many respects a give-away UK Budget, the Chancellor of the Exchequer, now universally known to all as "Fiscal Phil" Hammond, announced on 29 October two important measures aggressively targeting large cross-border businesses:
- a UK digital services tax from April 2020 charged at 2% of revenues derived from advertising directed at UK users by social media platforms and search engines, and commissions earned by online marketplaces facilitating transactions between UK users; and
- a new extra-territorial UK income tax charge at 20% on gross IP revenues received by no or low taxed entities from 6 April 2019 that are directly or indirectly referable to sales of goods or services in the UK by related or unrelated parties, representing a significant extension of the UK Government's original withholding tax proposals announced by the Government in Autumn 2017.
Other significant large business tax measures included:
- the introduction of a new corporation tax relief for the cost of goodwill on the acquisition of certain IP rich businesses;
- changes to the UK's de-grouping charge rules to exempt gains in respect of intangible fixed assets on the sale of trading companies to third parties from 6 November 2018;
- a new structures and buildings allowance for commercial property providing a 2% capital allowance for new projects where all construction works contracts are entered into on or after 29 October 2018;
- new restrictions on the use of brought-forward capital losses, limiting the use of such losses to 50% of annual capital gains above £5m from 1 April 2020;
- anti-fragmentation rules expanding the scope of the UK permanent establishment definition, aligning UK domestic law with the OECD's BEPS Action 7 recommendations and the UK's MLI position;
- VAT measures targeting the financial services sector, including tightening VAT grouping rules and so-called "VAT looping"; and
- important reforms to the UK diverted profits tax ("DPT") rules introduced in 2015 to make it clear that diverted profits may only be taxed once, either to corporation tax or DPT but not both, and allowing further time for taxpayers to amend their corporation tax returns to pay additional corporation tax to reduce a DPT charge during the first 12 months of the DPT review period, and extending the DPT review period overall to 15 months in total, with effect from 20 October 2018.