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Business Tax Briefing - 17/03/2017

Chancellor confirms Government will not proceed with Class 4 NICs changes
The Chancellor has confirmed that the Government will not proceed with the proposals to increase Class 4 National Insurance Contributions (NICs) from 2018, announced in the Budget on 8 March 2017.  The Chancellor stated: ‘For the avoidance of doubt, and as I set out in the Budget, we will go ahead with the abolition of Class 2 national insurance contributions from April 2018. Class 2 is an outdated and regressive tax, and it remains right that it should go. I will set out in the autumn Budget further measures to fund, in full, today’s decision.’ The Government will await the report from Matthew Taylor on the future of employment, consider its overall approach to employment status and rights to tax and entitlement and bring forward further proposals. It will not however bring forward increases to NICs later in this Parliament. See

Interest and royalties directive: 'beneficial owner'
The CJEU has published a reference for a preliminary ruling in a Danish case (C-682/16) on the interpretation of the term 'beneficial owner' in the context of the EU interest and royalties Directive.
Denmark has asked for clarification on whether the 2003 OECD commentary additions on conduit companies and a 2014 addition concerning contractual or legal obligations can apply to the Directive. The full text of the questions is at

OECD: automatic information exchange; admin assistance in tax convention
In September 2014, Hong Kong indicated its support for implementing automatic exchange of financial account information (AEOI) on a reciprocal basis with appropriate partners with a view to commencing the first exchanges by the end of 2018. Six treaty partners of Hong Kong have this week signed a competent authority agreement (CAA) with Hong Kong bringing the total number of CAAs to nine. Jurisdictions included Belgium, Canada, Guernsey, the Netherlands, Italy and Mexico (joining Japan, Korea and the UK). In addition, Panama has deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters. The Convention will enter into force for Panama on 1 July 2017. See

Making Tax Digital: Lords Report; HMRC research report
The Lords Finance Bill Sub-Committee has published its report on the Draft Finance Bill 2017: Making Tax Digital for Business. It concludes that the Government should delay the digitisation of tax for businesses.
The Committee agrees that the digitalisation of tax is to be welcomed, but concludes that the roll-out of the scheme is being rushed, is imposing unnecessary burdens on small businesses, and will yield little benefit to the Government. It recommends the Government does the following:
       Revise and improve its assessment of the benefits and costs of Making Tax Digital (MTD). Its estimates of the 'tax gap' savings are fragile and not based on adequate evidence.
       Delay the scheme until 2020 to allow a full pilot. This would allow it to test whether MTD does reduce taxpayer errors, assess the actual costs to business, and put in place support systems.
       Make keeping digital records and quarterly reporting optional for businesses with a turnover below the VAT threshold.
       Look again at whether some kinds of businesses, such as those with seasonal or highly irregular income, should be outside the scheme. See

HMRC have published a research report on MTD based on research carried out on the attitudes of small businesses and their agents. The research indicates that it will not be easy to convince taxpayers of the advantages of MTD.  The majority of businesses do not welcome an increase in their tax-related obligations and, as the report puts it, the disadvantages of MTD are more immediately apparent than the potential benefits. It notes that ‘The most common reaction was a somewhat resentful level of resignation…’   However 'many businesses, given space and time to consider it, do see some potential benefits.' What does emerge is that the design of the software will be crucial to successful implementation, as will the provision of good guidance and support.  See

Dbriefs webcasts
The next Dbriefs webcast is on Tuesday 21 March at 11.00 GMT/12.00 CET. The topic is A Closer Look At The GCC VAT Treaty and is from our indirect tax series. The call will be hosted by Daniel Lyons and during the call our panel of experts will discuss the new Gulf Cooperation Council (GCC) VAT Treaty and what it may mean to your organisation. To register for the webcast, click here.

Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2017
The Corporation Tax Act 2010 (Part 8C) (Amendment) Regulations 2017 came into force on 14 March 2017.  They narrow the scope of the special 45% corporation tax levy on restitution interest due under EU claims.  Charities and the income of policy holders of with profit funds are excluded from the levy, which is intended to compensate the Exchequer for the fact that the final award would be taxed at the current low rate of corporation tax in comparison to the high rates of corporation tax which were in force over the period in which the restitution accrues. The regulations  also strengthen an anti-avoidance provision to close a gap where the charge could have been avoided by a company being wound up or dissolved, or where a company is a beneficiary of a claim for restitution which has been made on its behalf by a third party. See

Rangers EBT case (Murray Group v HMRC): Supreme Court hearing
The Supreme Court heard the appeal against the decision of the Court of Session (Inner House) in favour of HMRC in Advocate General for Scotland v Murray Group Holdings and others (the Rangers EBT case) on 15 and 16 March 2017. See The Court’s decision will be handed down in due course.

Duty classification: Upper Tribunal emphasis objective characteristics
Honeywell Analytics imports a portable ‘Gas Alert Micro’ device which detects and measures a number of potentially dangerous toxic gases. It can store those measurements on a memory card, as well as sounding an alarm if gas levels are too high. The First-tier Tribunal agreed with HMRC’s Binding Tariff Information which classified the device as an alarm (on which duty was payable at 2.2%) rather than an instrument for measuring gas (on which duty would be 0%). However, the Upper Tribunal has now overturned that decision: it was an error of law for the First-tier Tribunal to focus on its perception of the intended use of the device, rather than its objective characteristics. The Upper Tribunal also rejected a belated attempt by HMRC to argue that the device should have been classified as ‘gas analysis apparatus’ as this had not been part of its arguments at first instance, and there was insufficient evidence on whether this was the correct classification. See   To discuss the case, please contact Jeffrie Mann on 020 7007 6975.  

Hilden Park: burden of proof in golf club rematch
At the beginning of 2016, the Court of Appeal refused leave to Hilden Park golf club to continue its challenge that the sporting exemption should apply to its services. The Upper Tribunal had found that the club’s efforts to establish a ‘not for profit’ company (a condition of the exemption) were an abuse of law, intended to achieve a tax advantage that was contrary to the purpose of the VAT legislation. A successor partnership, Hilden Park LLP, has now been challenged by HMRC on similar grounds. In a preliminary decision, the First-tier Tribunal has considered where the burden of proof in such cases should lie. On this occasion, it has determined that the burden of proof lies on HMRC, in the same way that it would if they alleged that an arrangement was a sham. This decision could make HMRC’s preparation for abuse of law cases considerably more difficult: they are less likely to rely on cross-examination of the taxpayer's witnesses, and will have to consider leading evidence of their own. However, the First-tier Tribunal seems to expect that an appeal by HMRC against this preliminary decision is likely. See To discuss the case, or its implications, please contact Anbreen Khan on 020 7007 0688

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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