Tax Bites - August 2023
Welcome to the latest edition of RPC's Tax Bites - providing monthly bite-sized updates from the tax world.
News
HMRC issues consultation on transfer pricing, permanent establishment and Diverted Profits Tax
HMRC has launched a new consultation requesting views on how to clarify and modernise UK legislation for multi-national enterprises in relation to three areas:
- Transfer pricing - pricing transactions between related parties.
- Permanent establishment - basis for taxing UK activities of non-UK resident companies.
- Diverted Profits Tax - basis for taxing UK activities of non-UK resident companies.
The stated purpose of the reform is to clarify and modernise the legislation, and ensure it achieves its objectives, while developing simpler rules that are easier to understand and which support growth by improving tax certainty. Beyond simplification, the key theme running through the consultation is to achieve further alignment between UK domestic legislation and OECD international principles. HMRC has confirmed that the entirety of the package of reforms is intended to be revenue neutral.
The deadline for responses to the consultation is 14 August 2023.
HMRC updates guidance on corporate interest deductibility restriction rules
HMRC has updated various parts of the guidance in its Corporate Finance Manual on the corporate interest deductibility restriction, including in relation to balancing payments for disallowance allocations, financial assistance and qualifying infrastructure company status.
The changes include additional guidance on:
- Disallowance allocations by reporting companies.
- The exclusion from "related party" status in calculating qualifying net group-interest expense.
- "Qualifying infrastructure company" status.
Treasury amends country-by-country reporting requirements
The Treasury has issued the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) (Amendment) Regulations 2023 (SI 2023/752), which come into force on 26 July 2023.
Currently, UK headed multinational enterprises are required to make an annual report to HMRC in certain circumstances and comply with additional notification obligations. The new regulations remove those additional obligations on the basis that the data gathered beyond the annual report is not required under the OECD model and is of little use to HMRC.
HMRC publishes guidance on corporation tax treatment of net settled options and cash cancellation payments
HMRC has published guidance (see here and here) on the corporation tax treatment of options that are net settled or cancelled in return for a cash payment. The guidance clarifies that corporation tax relief may be available under general principles for cash cancellation payments or for shares that are withheld when an option is net settled, but the amount that can be relieved is limited to the amount of the accounting charge.
New regulations introduced to specify the required contents of digital claims for R&D relief
On 17 July 2023, the Relief for Research and Development (Content of Claim Notifications, Additional Information Requirements and Miscellaneous Amendments) Regulations 2023 (SI 2023/813) were made. They specify the required contents of digital claims for R&D relief and require the digital filing of any amendment to a corporation tax return including an R&D relief claim.
Case reports
Tribunal confirms taxpayer can benefit from HMRC dispensation for employee expenses
In NWM Solutions Ltd v HMRC [2023] UKFTT 364 (TC), the First-tier Tribunal (FTT) held that the taxpayer was able to benefit from a dispensation issued by HMRC in relation to the reimbursement of certain employee expenses.
This decision examines dispensations and will be relevant for similar cases which are still under review by HMRC.
Although employers will no doubt welcome the FTT's decision regarding 'round sum allowances', it is of limited general application as dispensations were abolished from 5 April 2016, in favour of a tax exemption for qualifying expenses paid or reimbursed by employers.
The decision also highlights the importance of businesses having in place systems which adequately evidence compliance.
Our comment on the decision can be read here.
Does the Court of Appeal's decision in Murphy offer taxpayers a glimmer of hope in the public law sphere?
In overturning the High Court's refusal of the taxpayers' judicial review claim, the Court of Appeal (CoA) in Murphy v HMRC [2023] EWCA civ 497, has confirmed that HMRC breached its legitimate expectation as to the application of an Extra-Statutory Concession.
Many taxpayers will welcome the CoA's decision in Murphy, which is important for a number of reasons.
Our comment on the decision can be read here.
Legislation extending time limits for assessing unpaid offshore tax did not prevent the requirement to correct rules from applying to determine the time limit for making a discovery assessment
In James Scott v HMRC [2023] UKFTT 00360 (TC), the FTT held that legislation extending time limits for assessing unpaid offshore tax did not prevent the requirement to correct rules from applying to determine the time limit for HMRC to make a discovery assessment.
This decision confirms that the offshore rules do not prevent the 'requirement to correct' (RTC) rules from applying to determine the time limit for HMRC to make a discovery assessment. The FTT concluded that there was no inconsistency between the two rules that could give rise to the need to consider implied repeal. The RTC provisions were a specific time-limited set of provisions which had a reduced effect over time, whereas the 12 year extended time limit was an ongoing set of provisions.
Our comment on the decision can be read here.
And finally...
On 5 July 2023, Michael Firth, of Gray's Inn Tax Chambers, joined RPC's Adam Craggs, Liam McKay and Keziah Mastin in a webinar entitled: 'Litigating to win in the Tax Tribunal – Top Tips from the Front'. Click here to watch the webinar on Tax Take +.