UK Autumn Budget 2021 – International

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On 27 October, the UK’s Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget, and there are a number of developments of note for multinationals.

Notification of uncertain tax treatment by large businesses

For some time, the Government has been consulting on a new regime requiring large businesses to notify HMRC when they take a position that is ‘uncertain’ in their corporation tax, VAT or income tax (including PAYE) returns. Broadly speaking, this regime will apply where the tax advantage exceeds GBP5 million and the business has a turnover in excess of GBP200 million and/or a balance sheet total over GBP2 billion.

In the most recent consultation, the Government proposed three separate ‘triggers’ for notification:

  1. a provision has been made in the accounts for the uncertainty;
  2. the tax treatment applied is not in accordance with HMRC’s known position; or
  3. there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects.

The final trigger was the most controversial, and it appears that the Government has decided against introducing this trigger for now, stating that it is “committed to further consideration of [this trigger] for possible inclusion later.” This change is to be welcomed.

Consultation on potential introduction of re-domiciliation regime

The Government has released a consultation on a proposal to introduce an inward re-domiciliation regime for companies, allowing non-UK companies to relocate to the UK. The intention is that such a regime would not be restricted to particular sectors or industries, though re-domiciliation would only be possible from countries that allow outbound re-domiciliation.

The consultation document provides some initial thoughts on eligibility criteria for inward re-domiciliation (such as public interest, director standing and solvency tests), and states that consideration is being given to a wide range of potential tax implications of introducing such a regime, including tax residence, loss importation, stamp taxes and the personal taxation of company owners.

The Government is also considering the merits of establishing an outward re-domiciliation regime for the UK.

Diverted Profits Tax and Mutual Agreement Procedure

Legislation will be introduced to enable HMRC to implement tax treaty Mutual Agreement Procedure (MAP) decisions relating to the Diverted Profits Tax (DPT) in respect of MAP decisions reached after 27 October 2021.

This change will allow relief against the DPT to be given where that is necessary to give effect to a decision reached in MAP, and the change is being made to ensure that the UK meets its commitments under tax treaties. This is a particularly interesting development, as HMRC has previously taken the position that the DPT is not a covered tax under tax treaties.

Reform of R&D tax reliefs

The Government has announced that R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs. In addition, a yet-to-be-determined territoriality requirement will be introduced to refocus support towards innovation in the UK. Further changes will also be made to target abuse and improve compliance. No further details have been announced at this stage, but the changes will take effect from April 2023.

Abolition of cross-border group relief

Following Brexit, two changes are being made in relation to cross-border group relief claims to bring the rules relating to EEA-resident companies into line with those for non-UK companies resident elsewhere in the world:

  1. whilst UK companies can, in certain circumstances, currently claim group relief for losses incurred in the EEA, this will no longer be the case; and
  2. the rules on when EEA-resident companies trading in the UK through a permanent establishment (PE) can surrender losses of its PE will be aligned with companies resident elsewhere in the world.

Consultation on possible Online Sales Tax

Although announced previously, the Government has confirmed it will consult shortly on exploring the arguments for and against introducing an Online Sales Tax, the revenue from which will be used to reduce business rates payable by retailers with physical premises.

Should you have any queries on the Autumn Budget, please reach out to your usual UK tax contact or one of the contacts below.

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