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Business Tax Briefing - 04/08/2017

Corporation tax loss relief reform:  draft guidance
HMRC have published draft guidance in connection with the draft legislation to reform corporation tax loss relief to be included in the next Finance Bill, which is due to be published after the summer recess.  (For the latest version of the draft legislation see HMRC state that this is an initial tranche of guidance, focusing on the core rules and other aspects where guidance has been specifically requested. Comments are invited by 25 September 2017. See

Corporate interest restriction: updated draft guidance
HMRC have published an updated version of their draft guidance on the corporate interest restriction in connection with the draft legislation to be included in the next Finance Bill.  (For the latest version of the draft legislation see An initial tranche of draft guidance was published on 31 March 2017. This second tranche of draft guidance amends and updates that initial tranche. In particular, it reflects the updated legislation published on 13 July 2017, and includes additional material. Comments about the draft guidance are invited by 31 October 2017. See

Country-by-country reporting: UK notification deadline approaches
Please see the attached Alert on the UK’s country-by-country reporting notification deadline.

Country- by-country reporting: HMRC portal testing
HMRC are building a portal to allow the electronic submission of country-by-country reports.  A prototype service and draft supporting guidance have been developed. These now need to be tested by a controlled group of users so that HMRC can refine them and make any improvements needed.
Volunteering to take part will give taxpayers advance access to the XML Schema and HMRC guidance, as well as the opportunity to register for the service early and then validate country-by-country XML files. The process will involve sessions where the HMRC research team will walk volunteers through the process, as well as allowing them to use the system by themselves. Testing will run from July to August for the first phase.  If you are interested in taking part, you can register your interest here.  

Upper Tribunal  holds enquiry notice valid despite error in date
The Upper Tribunal has decided in favour of HMRC in a case which concerns a one-day error in a notice of enquiry. HMRC had purported to open an enquiry into a 2008-09 tax return, but described it in the notice as the year ended 6 April 2009, rather than 5 April 2009.  The First-tier Tribunal decided no valid enquiry had been opened, despite the provisions of TMA 1970 s 114 (want of form or errors not to invalidate assessments, etc.)  It also held that a letter to the taxpayer's accountants, Dickinsons, ('the Dickinsons letter') which was referred to in, and was enclosed with, the letter sent to the taxpayer did not form part of the notice of enquiry. The Upper Tribunal held that the First-tier Tribunal erred in law when it decided that the Dickinsons letter did not form part of the relevant notice of enquiry. It also held that the question whether a notice sufficiently makes a taxpayer aware of HMRC’s intention to open an enquiry into a particular tax return is an objective one. There could be no doubt that a reasonable taxpayer reading HMRC’s letter to the taxpayer would have concluded that HMRC were intending to open an enquiry and that the reference to the year ended 6 April 2009 was simply a minor clerical slip. See

Draft toolkit for developing countries: indirect transfers of assets
The Platform for Collaboration on Tax, which is a joint initiative of the IMF, OECD, UN and the World Bank Group, is seeking public feedback on a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers of assets. The tax treatment of 'offshore indirect transfers'  - the sale of an entity located in one country that owns an ‘immovable’ asset located in another country by a non-resident of the country where the asset is located - has emerged as a significant concern in many developing countries. There is no unifying principle on how to treat these transactions. The draft toolkit examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. Comments are invited by 25 September 2017. See final toolkit is expected to be released by the end of this year.

Commission's infringements package: France, Bulgaria, Cyprus and Portugal
The European Commission has requested France to amend certain provisions on how it calculates personal income tax. The French rules currently state that taxpayers resident in France and earning part of their income in another Member State of the European Economic Area (EEA) cannot benefit from the same personal and family tax advantages as apply to income earned in France. The Commission maintains that, by retaining these provisions, France is in breach of its treaty obligations. If the French authorities fail to act within two months, the case may be brought before the CJEU.

The Commission has sent reasoned opinions to Bulgaria, Cyprus and Portugal, as these Member States have failed to communicate the transposition of the new measures on the automatic exchange of tax rulings between EU tax authorities (Council Directive (EU) 2015/2376) into domestic law. Member States were supposed to transpose these measures by 31 December 2016. The new rules are designed to counter cross-border tax avoidance, aggressive tax planning and harmful tax competition. The first exchange of information between all EU tax authorities is supposed to take place by this September. The three countries have two months to reply. In the absence of a satisfactory reply, the Commission may decide to refer the case to the CJEU.  See

VAT: RCB 2(2017): care homes and hospitals
Residential care homes will frequently provide medical treatment for residents. In the past, HMRC have associated ongoing treatment with a home being a ‘hospital or similar institution’, meaning that its construction cannot qualify for zero-rating. However, they have now issued RCB 2(2017) which recognises that the test has been applied too strictly. For example, a low secure residential unit for people detained under the Mental Health Act may provide medical treatment; but that is incidental to the fact that the unit may be their home for two years or more, and that the care pathway involves much more than just medical treatment. HMRC now accept that personal care ‘may include both therapeutic and clinical treatment that can alleviate or improve the condition of the individual’ and will consider length of stay when determining whether a care home is a hospital. HMRC set out a 5% test for whether a treatment centre within a home also qualifies for zero-rating. Anyone who has been denied zero-rating on a new care home in the last four years should consider whether they are entitled to reclaim VAT. See To discuss the case, please contact Jacqui Nicholls on 0191 202 5222.

VAT: MJ Hickey: penalties for delayed tax: Upper Tribunal
MJ Hickey Plant Hire and Contracts Ltd configured its accounting systems to exclude turnover from the final day of each quarter from its VAT returns. The turnover was included on the next VAT return, so this produced a cashflow advantage rather than avoiding VAT altogether. When they identified the error, HMRC issued a penalty for 149,186 for a deliberate inaccuracy. MJ Hickey argued that the error was for delayed tax and therefore the penalty should be multiplied by 5% p.a. for a single quarter (i.e. a penalty of 1,865). The Upper Tribunal has agreed with MJ Hickey’s approach. Penalties for delayed tax anticipate a combined view of inaccuracies across two returns which (when combined) result in the correct amount of VAT being paid at the wrong time. The rules on delayed tax penalties were intended to cover exactly this sort of systematic error which shifted VAT from one quarter to the next. The decision highlights the importance of reviewing any penalties issued by HMRC to identify all possible means of mitigating them. See To discuss the case, please contact Mark Howard on 020 7303 8102.

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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