On 3 December 2014, the Chancellor delivered his Autumn Statement. Whilst the announcement of an overhaul to the Stamp Duty Land Tax (SDLT) regime applicable to residential property may have captured the lion’s share of most media commentary, a number of other measures announced will be of interest to corporate taxpayers.
Diverted Profits Tax
From 1 April 2015, a new “diverted profits tax” at a rate of 25% will apply to those multinational corporate groups who use so-called aggressive tax planning techniques to divert profits from the UK. Clearly a popular announcement with the electorate at large, coming just six months before a general election, the detail of the new tax was not revealed until the publication of the draft Finance Bill 2015 legislation.
Disguised fee income of investment managers
From 6 April 2015, guaranteed fee income of investment managers will be subject to income tax. It is understood that the Government is concerned that certain private equity firms have been using partnerships to convert trading income into capital receipts. Although the announcement sought to reassure the industry that “carried interest” and other returns genuinely linked to performance of the fund would not be affected, the draft Finance Bill 2015 legislation leaves a lot of questions unanswered.
Consortium relief link companies
From 10 December 2014, the requirements as to the location of a consortium relief “link” company were abolished. Previously a “link” company had to be UK resident, trading in the UK, or established in the European Economic Area.
A “link” company (being a member of a consortium) is required for a company owned by the consortium to surrender losses to another company in the same group as the link company.
Use of “cancellation” scheme of arrangement to mitigate stamp duty
In early 2015, legislation will be introduced to prohibit the use of schemes of arrangement to cancel a target company’s share capital and issue new shares to a purchaser (as a means of achieving a stamp duty saving).
Withholding tax – exemption for “private placements”
A new exemption from UK withholding tax is to be introduced to apply to interest payable on certain types of long-term, non-bank, unlisted debt.
Banks and carried forward losses and other reliefs
Continuing a recent trend of targeting the banking sector as a means of increasing tax revenue, from 1 April 2015 the proportion of taxable profits of banks and building societies that can be offset by carried forward trading losses, non-trading loan relationship deficits and management expenses will be restricted to 50% of the taxable profits.
The new restriction will only apply in relation to losses etc accruing before 1 April 2015.
Measures related to ongoing BEPS project
Given the shadow that the OECD’s ongoing base erosion and profit shifting (BEPS) project is casting over the international tax landscape, it is unsurprising that a number of the Autumn Statement announcements can be seen as being driven by BEPS, whether directly or indirectly:
- the new “diverted profits tax” must be seen against the backdrop of public and political anger that has resulted in BEPS
- new legislation is to be introduced to enable the implementation of the OECD’s country by country tax reporting template. From 1 January 2016, multinationals will need to provide HMRC with detailed information as to tax paid in each jurisdiction where the company operates
- a consultation has been launched on proposed new rules to cover the tax treatment of “hybrid mismatch” arrangements. The Government’s proposals largely mirror the OECD recommendations on this topic, although they do go further in that they also look at UK-UK transactions. To view the consultation, click here.