On 29 October 2018, the UK Chancellor of the Exchequer, Philip Hammond, handed down the 2018 UK Budget and announced a range of tax measures. While the headline measure was the proposed 2% digital services tax on large digital firms from April 2020 (see related Tax Technical Article), the UK Government also announced a range of corporate tax and BEPS related measures, including:
- Permanent establishments – the definition of permanent establishment will be amended to prevent multinational non-resident businesses from artificially fragmenting their operations to avoid creating a permanent establishment in the UK. DATE OF EFFECT: 1 January 2019.
- Hybrid mismatches – minor amendments wil be made to the UK’s hybrid and other mismatch legislation in respect of permanent establishments and the treatment of regulatory capital.
- Disregarded permanent establishments will be brought within the scope of the current rules where a permanent establishment of a company is recognised by the jurisdiction where a company is resident, but not recognised by the jurisdiction where the permanent establishment is located. DATE OF EFFECT: the change to disregarded permanent establishments will have effect from 1 January 2020.
- The exemption for certain regulatory capital, will also be amended to enable regulations to capture regulatory capital, that currently falls outside the scope of the rules. DATE OF EFFECT: the regulatory capital measure will have effect from 1 January 2019.
- Diverted Profits Tax – amendments will close a tax planning opportunity whereby corporation tax amendments can be made to a company’s return after the review period has ended and the Diverted Profits Tax time limits have expired.
- The “review period” for collaboratively determining the extent of diverted profits will be extended from 12 to 15 months.
- A company’s right to amend their corporation tax return during the first 12 months of the extended 15-month review period will also be extended, but only for the purposes of including the diverted profits into a corporation tax charge.
- DATE OF EFFECT: 29 October 2018.
- Non-UK companies with UK property businesses – non-UK resident companies, that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax, rather than being charged to Income Tax as at present. Consequential and transitional amendments will also apply. DATE OF EFFECT: The changes will apply to income arising on and after 6 April 2020.
- Hybrid capital instruments – tax treatment will be amended to remove tax uncertainty and ensure that interest payments on all debt-like instruments are deductible, subject to certain conditions. The measure will also eliminate differences in the way that 2 linked loan relationships are taxed. DATE OF EFFECT: 1 January 2019.
[LTN 209, 30/10/18; Tax Month – November 2018]
FJM 12.11.18
CPD questions (answers available)
- What is the Australian equivalent measure to protect against ‘permanent establishment’ abuse?
- What are the start dates for the two ‘Hybrids Mismatch’ changes?
- To what period with the period of ‘collaboratively determining’ the diverted profits, be extended?
- What sort of tax will non-UK companies, with UK property businesses, become subject?
- Will interest on Hybrid Capital Instruments be deductible?
