UK has put forth new legislation, commencing 1/1/2021, focusing on Hallmark D only while they are presumably modifying the EU rules to new UK rules.
As an update, HMRC has clarified that only Hallmark D arrangements, including historical arrangements, are required to be reported commencing 1/1/2021.
https://www.legislation.gov.uk/uksi/2020/1649/regulation/2/made
IRS issued new regulations for translation in Sec. 986(c)
The IRS also issued new LB&I guidance addressing computation of Sec. 986(c) computations, attached for reference.
US T.D. 9909, Final Regulations, in coordination with the issuance of proposed regulations, REG-124737-19, addressing Sec. 245A and the exception to subpart F income under Sec. 954(c)(6). The final regulations address extraordinary dispositions and reductions.
The UK will drop its Digital Service Tax (DST) initiative, knowing it would only increase its stimulus by several hundred million dollars , while COVID-19 has set the country back hundreds of billions of dollars in stimulus. It will be interesting how other countries, who have adopted or are thinking about a unilateral DST, will react prior to the OECD Project addressing this in Pillar One.
Several Member States have started to issue additional guidance, as they prepare for implementation. The UK and Dutch administrations have issued new guidance, although they have both adopted the 6-month reporting deferral.
Examples in both sets of guidance are informative, and may also serve as a trend for other Member States that are in the process of implementation.
However, Germany, among others, remains fairly silent in this guidance as they have not adopted the deferral period, with reporting deadlines at the end of July and August 2020.
The UK Chancellor’s Spring Statement was announced on March 13, 2019 with a focus on the following:
Additional consultations will follow, including the Digital Services Tax planned for April, 2020.
As the UK is still negotiating its entrance into, or exit from, Brexit, these developments will be especially important.
EY’s Global Tax Alert provides details for reference:
Click to access 2019G_000796-19Gbl_UK%20Chancellor%20announces%20Spring%20Statement.pdf
HMRC is now reviewing diverted profit tax cases in round 2: citing the following EY’s link referenced herein:
There are already 100+ DPT cases ongoing and hundreds more “Large” and “Mid-Sized” cases will now be reviewed and enquiries launched in the next 12 to 18 months. Market intelligence suggests a particular focus on Mid-Sized cases, and on sectors including life sciences, oil and gas, and mining and metals. HMRC is also investigating a number of captive insurance arrangements within large groups.
As a reminder, DPT is aimed at groups that use what HMRC sees as contrived arrangements to circumvent rules on permanent establishment (PE) and transfer pricing. DPT is intended to address two broad situations:
Note, the UK DPT is not arguable on a tax treaty basis, and it is based on the concept of pay now, to be resolved later. It was also enacted as a deterrent for taxpayers to start paying regular tax, vs. no tax, as a DPT was seen as an avenue to avoid the additional tax and controversy. Thus, it is prudent to review any potential instances of DPT.
The UK EU exit bill has been introduced in Parliament, paving the way for suggested interpretations of:
This document portrays a glimpse into the thoughts behind the complex and myriad evolutions that will take place with the Brexit negotiations. Tax, supply chains, individual changes, VAT, etc. and related unknown implications are still to be discovered; the EY Global Tax Alert provides a primer into the brave new world of a country exiting the EU. Note, this is also a valuable reference for other countries considering this option.
The recent election, resulting in the Conservative Party losing a majority, introduces additional uncertainty into the Brexit process and also affects the Finance Act.
What will happen to the tabled Finance Act proposals that were deleted by the fast-track changes in the last amendment? Additionally, what will be the effective dates, if they are formally introduced at a later date, April 2017, upon introduction or possible extending into 2018 or not at all based on the political uncertainty.
The normally routine Finance Act process, with no amendments and straightforward measures that can be planned for upon announcement, is no longer true. At this moment, the tabled measures should not be considered probable to happen due to the new political nightmare that was self-created although not envisioned.
It is hopeful the UK Parliament will stabilize this process going forward, although in the near future there is no definitive certainty.
EY’s Global Tax Alert provides additional details:
The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.
Summary:
OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.
Belgium: New innovation deduction covering patent and other IP rights.
EU: Proposal for hybrid mismatch rules with non-EU countries
Norway: Adoption and regulations for CbC reporting
UK: Interest limitation rules, among other provisions
US: CbC Form 8975 released
From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.
As everyone knows, there is alot of uncertainty and doubt about what lies ahead for the UK as they will be leaving the EU, final timeline yet to be determined.
From a tax perspective, the linked EY Global Tax Alert summarily describes foreign exchange issues, alignment with EU court cases and Directives (including country-by-country reporting), ongoing BEPS alignment and conformity, treaty / immigration issues, EU State Aid, VAT and the need for transitional review.
Apart from BEPS, this change will compound the tax (un)certainty of the UK for the near future.
This is an excellent time for legal and operational review of UK operations, ensuring old structures and loans are dissolved, if possible, to mitigate future risks. All multinationals should align with all stakeholders to face this radical change.
Tax Executives Institute (TEI) has provided practical and insightful comments in response to UK’s Large Business Compliance Consultation by HMRC, which is far-reaching. A link to TEI’s comments is provided for reference:
Key points:
The tax transparency see-saw has now tilted to a dangerous level, in that transparency objectives no longer seem to meet the needs of tax authorities.
Information is being requested to satisfy presumed needs of the public and tax administrations, although similar efforts are not being made to have discussions with taxpayers to better understand tax risk and the relevant functions, assets and risks for which transfer pricing should be based in the relevant jurisdiction.
The UK proposal, and similar initiatives, may indeed erode the trust for which the tax authorities are seeking. It would be a novel concept to include the business community in discussions around these proposals prior to drafting, a welcome initiative that would better represent a win-win opportunity. Additionally, all audits should begin with a formal understanding of the transfer pricing practices of the MNE in that jurisdiction to focus tax queries accordingly and efficiently.
As the UK Diverted Profits Tax model has strayed from the OECD’s intent re: the BEPS Action Items, it has nonetheless been followed by other countries. This proposal may have a similar result, magnifying the concern of MNE’s and merits a detailed review by all MNE’s irrespective of UK business presence.
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
Key Points:
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?
Strategizing Multinational Tax Risks 