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Business Tax Briefing - 14/07/2017


Finance Bill to be published after summer recess; draft updated legislation published
The Government has confirmed that a new Finance Bill will be introduced “as soon as possible after the summer recess”, reintroducing changes to tax legislation that were withdrawn from the previous Finance Bill (now Finance Act 2017) as a result of the calling of the general election. The Commons is due to break for its summer recess on 20 July, returning on 5 September. See
http://deloi.tt/2udo3Te.

Policy papers containing updated legislation to be included in the next Finance Bill were published on 13 July. Mel Stride, the Financial Secretary to the Treasury, provided the following background to these papers: "The Finance Bill to be introduced will legislate for policies that have already been announced. In the case of some provisions that will apply from a time before the Bill is introduced, technical adjustments and additions to the versions contained in the March Bill will be made on introduction to ensure that they function as intended. To maximise certainty about the exact provisions that will apply, the Government is today publishing updated draft provisions.”

The key corporate tax papers are those covering:

       The corporate interest restriction. This legislation will come into effect from 1 April 2017.
       The carry forward of corporate tax losses. These rules will also come into effect from 1 April 2017
       Changes to the hybrid rules, including the removal of local taxes from the definition of overseas taxes that can be taken into account when determining whether there is a mismatch from 13 July 2017.

Updated papers were also published in respect of the substantial shareholding exemption; employment income provided through third parties; inheritance tax on overseas property representing UK residential property; and deemed domicile rules for income tax and capital gains tax. See http://deloi.tt/2udEQ8H.

A list of provisions that will apply from the start of the 2017/18 tax year, or any other point before the introduction of the Bill, has also been published. See http://deloi.tt/2ummsKH.

Introduction of Making Tax Digital deferred

In the same statement, the Government confirmed a change in the timetable for the implementation of the Making Tax Digital (MTD) programme. Businesses above the VAT registration threshold will not be mandated to use the MTD system until April 2019, and then only to meet VAT-related MTD obligations. The statement states that the Government “will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest”. See
http://deloi.tt/2uVpNhn.

Dbriefs webcasts

The next Dbriefs webcast is on Tuesday 18 July at 12.00 BST/13.00 CEST. The topic is A New Era For Tax Compliance: Mastering The UK’s Tax Digital Journey and it is from our UK tax focus series. During the webcast, our panel of experts will discuss HMRC’s making tax digital transformation programme and similar initiatives in other countries and what your organisation could and should be doing now to prepare for the ‘Age of Digital’. To register, click
here.

OECD publishes draft Model Tax Convention

A draft of the next update to the OECD’s Model Tax Convention on Income and on Capital and its Commentary has been released by the OECD’s Committee on Fiscal Affairs. Significant changes to the Model Tax Convention have been previously approved or released for comments, most notably those arising from Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements), Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances), Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and Action 14 (Making Dispute Resolution Procedures More Effective) of the G20/OECD Base Erosion and Profit Shifting (‘BEPS’) Project. In addition, four non-BEPS-related changes, mainly to the Commentary, are proposed. Comments are requested only in respect of the latter changes and the deadline for responding is 10 August 2017. See
http://deloi.tt/2u8hq4Q.

OECD publishes 2017 edition of Transfer Pricing Guidelines

The 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations has been published. This latest edition, the first since 2010, mainly reflects a consolidation of changes resulting from the G20/OECD BEPS Project, including those arising from the Reports on BEPS Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) and Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting), approved by the OECD Council in 2016. Other changes include revised guidance on safe harbours, which was previously approved in 2013; and conforming revisions to guidance on business restructurings, approved in 2017. See
http://deloi.tt/2v6SiZ5.

Multilateral Instrument: Beta version of Matching Database released; New signatories

Following the June signing of the Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent BEPS (‘the MLI’), the OECD has released a preliminary version of a new tool – the Matching Database – to help users understand how specific bilateral double tax treaties are expected to be modified under the MLI mechanisms. The Matching Database is based on the provisional lists of reservations and notifications (‘MLI positions’) published by the 70 MLI states. See
http://deloi.tt/2tE1S7L.

Mauritius (http://deloi.tt/2u4sLma) and Cameroon (http://deloi.tt/2te7X7a) signed the MLI on 5 July and 11 July respectively. The MLI website has been updated to include Mauritius’s and Cameroon’s MLI positions, together with Norway’s MLI position, which was not previously publicly available. See http://deloi.tt/2tIjwY7.

Taylor Review of modern working practices report published

The report on modern working practices in the UK, titled Good Work, has been published. The report urges a new legislative framework to make it easier to distinguish workers from the self-employed. The report states “While self-employment is not an employment status, Government should aim for ‘self-employed’ to mean the same for both employment rights and tax purposes” [...] “The dividing line should be between the new dependent contractor status outlined and self-employment so that being employed for tax purposes naturally means an individual is either an employee or a dependent contractor.” See
http://deloi.tt/2tEroK4.

Boehringer Ingelheim Pharma
: manufacturer rebates paid to third parties – AG Opinion  

In Germany, pharmaceutical manufacturers are obliged by law to pay rebates to public and private health insurers. Unlike the public health insurance fund, private health insurers do not buy and sell the drugs – they just pay for them.
In Advocate General Tanchev’s Opinion, there was no real difference between the two channels for VAT purposes. In both cases, Boehringer knew that, by law, it would have to rebate 7% of its total sales. Applying Elida Gibbs, Boehringer should account for VAT by reference to amounts received, adjusting for rebates which it was obliged by law to pay, even if paid to third parties. If the CJEU endorses the AG’s Opinion, then the current treatment of rebates paid to third parties, particularly where they are required by law, will have to be reconsidered. To discuss the case please contact Simon Atkins on 020 7007 2348.

London Borough of Ealing
: VAT sporting exemption claims – CJEU

The UK is allowed to make the VAT sporting exemption for the not-for-profit ("NFP") sector subject to there being no distortion of competition with commercial providers.
The CJEU has ruled that the UK did not implement the exemption correctly in relation to local authorities. The UK had excluded all local authorities from exemption, but not other NFP operators, whereas the exemption was meant to be more easily available to local authorities and “bodies governed by public law” than to other NFP operators. Therefore, the UK could only apply a distortion of competition condition to local authorities if it also did so to bodies which were not governed by public law. The UK’s application of a blanket distortion of competition condition to exclude all local authorities from the sporting exemption is therefore incompatible with the Principal VAT Directive. To discuss the case, please contact Mark Dyer on 0121 695 5897.

Deloitte European VAT Refund Guide 2017

Non-resident businesses can incur significant amounts of VAT on expenses such as hotel bills, trade fairs, and exhibitions. In principle, businesses should be able to recover some or all of the VAT incurred. The
2017 edition of Deloitte’s European VAT Refund Guide (updated to 1 May 2017) covers the rules and procedures to obtain a VAT refund in 31 European countries.


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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