Overview
Sarah Gabbai, attorney at law firm McDermott Will & Emery, said:
“Given that Tax Day was always going to be about measures with no immediate fiscal impact, it’s not really that surprising that the hotly-anticipated rise in CGT rates and other revenue-raising measures, never mind broader reforms to the tax system, haven’t been introduced at this stage. Instead, we’re currently seeing a series of consultations on specific policy areas selected for reform that fall under the general themes of improving compliance, reporting and administration, as well as tackling tax avoidance.
Two new tax transparency proposals will be of particular interest to larger businesses. The first of these is a proposed new requirement for businesses to notify HMRC of uncertain tax positions. The new rules would apply to businesses already subject to the Senior Accounting Officer and Publication of Tax Strategy rules, and would apply to transactions reported in tax returns due to be filed after April 2022. Although the consultation is purportedly aimed at closing the legal interpretation gap between HMRC’s published view of the relevant law and that taken by the taxpayer business, some of the notification triggers suggested by HMRC appear to go beyond mere interpretation differences and risk straying into territory where (say) a non-statutory clearance might be more appropriate. For example, under HMRC’s proposals, a notification obligation would be triggered if (amongst others) the transaction is “in some way novel such that it cannot reasonably be regarded as certain”. That in itself is liable to create further uncertainty for in-scope businesses as to whether or not a transaction would notifiable under the new rules.
The second of these proposals is a new transfer pricing requirement for UK multinational enterprises (MNEs) within country-by-country reporting (CbCR) groups to prepare master and local files for production upon HMRC’s request, in line with the OECD’s BEPS Action 13 recommendations. These would be used as evidence that the business took reasonable care in preparing its tax return, in addition to supporting the arm’s length nature of any controlled transactions. Given that the UK has been at the forefront of most OECD-led initiatives, it is surprising that the UK didn’t introduce these rules back in 2016 when the UK CBC regulations came into force.
For most businesses, this should largely be an exercise in repurposing existing records to fit the relevant criteria and any model templates, rather than creating new ones from scratch, although they may need to consider establishing new internal processes for gathering the requisite data. Such businesses may also find it helpful to leverage the experience of their affiliates in other jurisdictions, where preparing master and local files have been a legal requirement for some time.
Where tackling tax avoidance is concerned, HMRC continues to be laser-focused on disguised remuneration (DR) schemes. Although HMRC’s stated aims are to tackle the promoters of such schemes and to help taxpayers exit them, this by itself will not help those taxpayers who are already subject to the retrospective Loan Charge. In addition, the new off-payroll rules from 1 April, which will effectively put the payroll obligation on medium and large businesses who engage contractors operating through personal service companies, will likely lead to increased use of employment agencies and umbrella companies. Although most are PAYE-compliant, some make use of aggressive DR schemes to reduce the taxpayer’s income tax and NI. For this reason, there is a risk that the new off-payroll rules could ultimately lead to further proliferation of such schemes. Businesses that decide to contract with such agencies or umbrella companies in order to avoid being subject to the new off-payroll rules will therefore need be alive to the possibility that in some cases they may be facilitating potential tax non-compliance – so they may just end up swapping one headache for another.”
