EY’s Global Tax Alert provides a summary of the US congressional developments, including a review for US Foreign Tax Credit (FTC) applicability of the UK’s Diverted Profits Tax (DPT) which went into effect April 2015.
This review highlights a renewed focus on receiving a US FTC for income that may have been taxed in another (low-tax) jurisdiction and for which a country asserts a right to tax in its jurisdiction. The answer is not yet clear, and this analysis also points the way forward for similar tax measures being legislated by various countries.
Click to access 2015G_CM5920_Report%20on%20recent%20US%20international%20tax%20developments%20-%2030%20October%202015.pdf
HMRC published a discussion document on 2 February addressing the role and imposition of penalties, with a closing date for comments 11 May 2015. A link to the document is included:
Click to access 150130_HMRC_Penalties_a_Discussion_Document_FINAL_FOR_PUBLICATION__2_.pdf
- HMRC’s compliance strategy is based on three principles: Promote good compliance via systems/processes, prevent non-compliance and respond to risks.
- Questions for comment address concerns about current penalties and suggestions for changing the penalties process.
- The process and next steps are developed in 5 stages: (1) Setting out objectives, (2) Developing options and a framework for implementation, (3) Drafting legislation, (4) Implementing/monitoring the change, and (5) Reviewing/evaluation the change.
- Annex A provides an overview of the main penalty regimes, with a matrix of penalty percentages dependent on careless, deliberate, or deliberate and concealed behavior.
The document represents a willingness and “good faith” effort on behalf of HMRC to address the current state and request comments for Best Practice processes. Interested parties should review the document and provide comments accordingly.
As the Diverted Profits Tax option seems to be moving forward quickly to be potentially effective in April, 2015, relevant processes for imposition of a 5% “tax penalty” and accelerated payments should be weighed against the five principles of HMRC’s penalty process. The five principles state: The penalty regime should be designed from the customer perspective, they should be proportionate, penalties must be applied fairly ensuring that compliant customers are in a better position, penalties must provide a credible threat and customers should see a consistent and standardized approach. Does the Diverted Profits tax process and objectives meet the principles expressed in the Discussion Document?