On 22 November 2017, the Chancellor delivered the Autumn 2017 Budget. As well as some further tinkering with the hugely complex hybrid mismatch rules and new corporation tax interest deductibility restriction regime, the key announcements of most interest to corporates include:

Gains made by non-residents on sales of UK property

The government has launched a consultation on plans, to take effect from April 2019, to subject non-residents to UK tax on gains upon sale of all UK land. The consultation proposes three extensions to current law in this regard:

• extension of the UK tax charge to gains by non-residents on sale of all UK property (ie commercial, as well as residential, property)

• extension of the UK tax charge to gains by widely-held non-resident companies on sale of UK property (currently, only closely-held non-resident companies are taxed on gains on sale of residential property)

• new charge to tax on gains of non-residents on “indirect” disposals of shares etc. in “property rich” entities. In order to be “property rich”, at least 75% of the gross asset value of the entity must be derived from UK land (whether commercial or residential). Holdings of less than 25% ( judged over a five-year period) will be ignored for these purposes.

Whilst described as a consultation it seems highly probable that these changes will be enacted.

The consultation can be viewed here.

Losses of permanent establishments and double tax relief

From 22 November 2017, a further restriction now applies to UK companies with permanent establishments (PEs) located elsewhere, looking to take advantage of double tax relief in the UK in respect of overseas tax paid on the profits attributable to the PE. The new restriction is intended to ensure that the UK company does not get tax relief twice for the same loss. In summary, if the non-UK jurisdiction allows losses attributable to the PE to be set off against profits not attributable to the PE (ie “sideways” loss relief) then any overseas tax saved as a result will be taken into account in determining the extent of any double tax relief available in the UK.

Stamp duty and SDRT on share issues to clearance services and depositary receipt issuers

The government has confirmed that it will not seek to take advantage of Brexit as an opportunity to reintroduce the 1.5% stamp duty and SDRT charges under sections 67, 70, 93 and 96 of the Finance Act 1986.

Withholding tax on royalties

It was announced that, as part of the government’s approach to taxing the “digital economy”, a consultation would be launched on proposals to significantly widen the scope of the UK withholding tax obligation on royalty payments.

Under current law, UK tax at the rate of 20% is required to be deducted at source from IP royalty payments to persons whose “usual abode” is outside of the UK. It is, however, currently a requirement that for the withholding obligation to apply, the payer of the royalties must be UK resident or have a UK permanent establishment. 

The consultation was indeed published on 1 December 2017 and the proposal is that the UK withholding tax obligation will be extended to royalties paid by non-UK residents, not having a UK taxable presence but making sales in the UK. As proposed, only payments between connected parties with the recipient in a low or no-tax jurisdiction would be caught by the extension. The consultation envisages that the new rules will take effect from April 2019.

The consultation can be viewed here.