July 2008

UK VAT: CHANGES TO THE OPTION TO TAX

The United Kingdom’s long-awaited new rules on the option to tax, one of the most complex areas of UK VAT, have now come into force.

Opting to tax a commercial property for VAT purposes changes sales and leases of that property from exempt supplies into taxable supplies and, crucially, affects the land owner’s ability to recover its own VAT incurred on that property.

The Option to Tax

The first object of the new legislation was to rewrite the existing law in clearer language, and many of the basic procedures and issues remain the same. However, in certain areas there are new rules and new issues. The rules have become more complicated and additional forms have been introduced because Her Majesty’s Revenue & Customs wishes to give businesses flexibility and at the same time curtail avoidance.

Key Points

Since 1 June, UK law refers to an “option to tax” rather than an “election to waive exemption”. All documents should do likewise.

Extra care will need to be taken when describing what is covered by an option, ie building or land. If you are constructing a new building and you wish to both preserve your right to sell or lease it exempt but also wish to reclaim VAT on construction costs in the meantime, there are new rules to preserve your ability to do this. These are set out below in more detail.

It will soon be 20 years since the first options to tax were made back in 1989. From 1 August 2009, some of them will be revocable. If you have 20-year-old elections, it is time to review them in the light of the new rules, to check whether it is still advantageous to maintain them and, if it is not, to see whether value can be added to the property or the yields by revoking them. Perhaps a deal can be done with an exempt tenant to everybody’s advantage.

If a property owner or group has made a “global” or “blanket” option to tax on all its properties which saves it from having to opt to tax each individual property it acquires, it will now need to consider how to deal with this going forward. The informal arrangements allowed until now will fall away and the property owner will need to consider whether the new “real estate election,” which we describe below, is appropriate. This new facility is more flexible than the old rules, because it permits revocation on a property by property basis.

For our readers, we have prepared an overview of these key points and some of the potential issues that may arise from the other changes.

Please read it here.


TAX ON FINANCE TRANSACTIONS: UKRAINE

What are the essential things you need to know about Ukraine’s cross-border taxes on finance transactions? The newly published PLC Cross-Border Tax Handbook 2008-2009 includes a chapter by our lawyer
Illya Sverdlov outlining the procedures and requirements for taxpayers.

Please read the chapter here.


WE WELCOME A NEW ARRIVAL

Sirathorn B.J. Dechsakulthorn has joined DLA Piper as an economist. Based in Los Angeles, she comes to the firm from KPMG, where she was a senior associate in the economics, valuation and transfer pricing practice.

Ms. Dechsakulthorn focuses her work on the economic aspects of tax planning and transfer pricing as well as economic and valuation issues arising in mergers and acquisitions, restructuring, venture capital and other transactions.

Her contact information:

B. J. Dechsakulthorn
(310)595-3003
sirathorn.dechsakulthorn@dlapiper.com


DLA PIPER IN THE NEWS

Coming soon

China’s New Business Income Tax, plus other topics

Alan Granwell, partner, and Peng Tao, Of Counsel, will be among the speakers at this live teleconference Thursday, August 7 from 1 PM to 2:40 PM EST, which will cover several topics critical to companies doing business—or considering doing business—in China. Topics include the terms of the Chinese enterprise income tax and its associated circulars; particular dispute resolution issues; and the impact of the IRS proposed contract manufacturing regulations for US companies in China.

For more information and to sign up, please click here.

FAS 109: FIN 48: Accounting for Uncertain Tax Position for
Fund Managers

Sang Kim, DLA Piper partner based in Silicon Valley, will be among the speakers at this live teleconference and webinar September 3 from 1 to 3 PM EST. For more information about the event, click here.

Courtesy of DLA Piper, you are entitled to receive a discount of $50 off the registration fee for this teleconference. To obtain your discount, at the “Apply Discount” section on page two of the registration form, please enter the discount code dlapiper.

Recent events

30th Annual Tax Conference of the National Association of
Real Estate Companies

Speakers at the 30th Annual Tax Conference of the National Association of Real Estate Companies in June in Williamsburg, Virginia included DLA Piper’s Stephen Owen (Baltimore/Washington, DC), who discussed “Current Real Estate Deal Structures.” Also speaking at the event was former House Majority Leader and DLA Piper Senior Policy Adviser Dick Armey (Washington, DC), whose talk was entitled “Washington Outlook and Forecast.”

4th Annual Examining Corporate Tax Strategies for Multinational Corporations

The 4th Annual Examining Corporate Tax Strategies for Multinational Corporations conference, presented in our New York office by DLA Piper and the Business Development Institute, focused on strategies for multinationals seeking to reduce their foreign effective tax rates. The conference featured presentations on methodologies and techniques shaping the industry and aimed at achieving tax objectives. Speaking at the event were Brian Andreoli, David Hryck (both New York),
Jeff Korenblatt (Washington, DC), Paulus Merks (Amsterdam) and Peng Tao (New York).