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Legal Developments in the The UK Legal 500 2017

US rules regarding offshore accounts

March 2011 - Corporate tax. Legal Developments by Jones Day.

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The Hiring Incentives to Restore Employment Act 2010, enacted on 18 March 2010, imposes a new US withholding tax and reporting regime, known as the Foreign Account Tax Compliance Act (FATCA). The FATCA regime applies generally to payments made after 31 December 2012, except on obligations (to be defined in future guidance) outstanding on 18 March 2012. Substantial effort is required by foreign entities to bring their worldwide operations and policies into compliance with the FATCA rules as of the effective date.


UK tax: what will change in 2011?

February 2011 - Corporate tax. Legal Developments by Jones Day.

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Continuing the recent trend of expanding the UK’s already extensive body of tax legislation, 2011 looks likely to be a busy year for the law makers. This article summarises the key tax changes that are set to take place over the next year.


Foreign branch taxation reform

December 2010 - Corporate tax. Legal Developments by Jones Day.

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In its June 2010 Budget the Government announced several proposals as part of a five-year plan to reform corporation tax, including a proposal to exempt foreign branch profits from corporation tax. This followed the previous government’s announcement in the 2009 Pre-Budget Report that it recognised foreign branch taxation as a ‘matter of growing importance’ and intended to engage with businesses to explore potential future rule changes. A discussion document setting out the proposal for such an exemption and key issues arising from it was published on 27 July 2010, alongside the reform of the Controlled Foreign Company (CFC) rules.

Coalition government’s plan for tax reform

July 2010 - Corporate tax. Legal Developments by Jones Day.

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The Coalition Agreement made between the Liberal Democrats and Conservatives, published on 20 May 2010, together with the Queen’s Speech delivered on 25 May 2010, contained several proposals for tax reform, which in the government’s view are aimed at creating a fairer and simpler taxation system. The tax measures that have been proposed widely reflect most of the Conservative and Liberal Democrat manifesto pledges, though the scope of a few of the measures has been reduced.

This article provides a summary of the coalition government’s key proposals for taxation reform, which are widely expected to be introduced in the emergency budget. In addition, this article specifically focuses on the proposed changes to the capital gains tax (CGT) regime and considers the implications that these proposed changes may have on certain taxpayers.

Will high-earners suffer further wealth reductions?

June 2010 - Corporate tax. Legal Developments by Jones Day.

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It was hardly surprising and perhaps inevitable given the current economic and financial crisis, coupled with a general election, that the government would attempt to find ways to raise funds to repay the public debt, without adversely affecting the majority of voters. One such method devised by the Labour government was to restrict tax relief on contributions to registered pension schemes, with effect from 6 April 2011, for high-income earners. 


The Labour government introduced legislation in the Finance Act 2010 to restrict the tax relief for those people with pension savings, and for those who have a gross income of £150,000 and over. Relief will be tapered away so that for those earning in excess of £180,000, it is worth only 20%, the same as to a basic rate taxpayer. This means that individuals affected by the restriction will continue to receive at least basic rate relief on all pension contributions (subject to the existing annual and lifetime allowances).


EFRBS Attractive alternative for high earners?

May 2010 - Corporate tax. Legal Developments by Jones Day.

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6 April 2006 saw the introduction of the Employer Financed Retirement Benefit Scheme (EFRBS), replacing the now defunct Funded Unapproved Retirement Benefit Scheme. An EFRBS is an unregistered (ie not registered with HM Revenue & Customs) pension scheme commonly used to provide retirement benefits to high-net-worth individuals (defined as those earning over £150,000 per annum for the purposes of this article). It is commonly used as a retirement vehicle to incentivise and reward key employees, directors or shareholders.

The employer will usually establish a trust that has the purpose and power to enable the employer to provide retirement benefits to employees. Employees cannot make contributions to the EFRBS. There are two types of EFRBS: a funded EFRBS and an unfunded EFRBS.

A Swift analysis

May 2010 - Corporate tax. Legal Developments by Jones Day.

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The First tier Tribunal’s finding in Swift v HM Revenue & Customs (HMRC) [2010] that a Delaware limited liability company was not an opaque vehicle for UK tax purposes has caused a stir in the international tax structuring arena. However, while this decision appears to go against HMRC’s stated general view that Delaware LLCs are not transparent vehicles and so are treated as companies rather than look-through vehicles for UK tax purposes, the tribunal reached its decision in Swift on its particular findings of fact relating to the agreement governing the LLC in question.

It is important to note that the decision does not cover all LLCs and it results from the tribunal’s finding that under the agreement governing this LLC the members of the LLC were entitled to the LLC’s profits as they arose. This decision highlights, however, that taxpayers cannot automatically follow HMRC’s published general practice and assume that a Delaware LLC will be treated as a company for UK tax purposes. Instead, the taxpayer must look at the particular rights of members of the LLC in question and cannot assume that all Delaware LLCs (or other non-UK entities) will be treated in the same way for UK tax purposes. The individual facts of each case must be considered.

Tax and social policy

May 2010 - Corporate tax. Legal Developments by Jones Day.

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The world of tax is quite interesting at the moment – to me, at least – because it brings into sharp focus the way that tax is used as an instrument of policy and what role it is playing in the field of social policy. It is hardly news that the state of public finances in most western economies is, to be charitable, delicate. No doubt the finances will be redressed, to an extent, by cuts in spending. However, it is equally clear that some of the improvement will have to come from an increase in public revenues.

Pre-Budget Report 2009: international tax matters

February 2010 - Corporate tax. Legal Developments by Jones Day.

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In this month’s corporate tax article, we have considered some of the proposed international tax measures introduced inthe Pre-Budget Report (PBR 2009). The headline-grabbing measures of the PBR 2009, such as the bank bonus tax or the increases in national insurance contributions, have already received considerable media attention and commentary, and therefore this article does not seek to review those measures. Instead, I will focus on some of the international tax measures introduced in the PBR 2009, and consider whether the proposed changes are an effective and proportionate response to the problems that the new rules are seeking to address.

HMRC sharpens its tools to combat avoidance

February 2010 - Corporate tax. Legal Developments by Jones Day.

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A consultation document, ‘Disclosure of Tax Avoidance Schemes’ (the consultation document), has beenpublished in respect of proposed changes to the disclosure of tax avoidance schemes (DOTAS) regime, which are largely aimed at improving compliance and widening the scope of the types of transactions that are disclosable. It is clear that HMRC consider this legislation to be extremely effective in countering and reducing tax avoidance, and consequently they would like to improve and develop the disclosure regime by broadening its application. This article will briefly review the current DOTAS rules and consider whether the proposed new rules are likely to have a positive impact on tax recovery and mitigatingtax avoidance.

Immediate tax clampdown on debt buy-backs

January 2010 - Corporate tax. Legal Developments by Jones Day.

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The Government announced on 14 October 2009 in a written ministerial statement that changes will be made in next year’s Finance Bill, with retrospective effect to 14 October 2009, to amend the UK tax rules applying where existing debt is purchased at a discount by a company connected to the debtor.

Background and current law

In the present economic conditions many banks and other businesses have issued debt that is trading at a discount to the amount borrowed. Given the uncertainty and volatility in the financial markets, many banks and other businesses are seeking to buy back their debt.

First-tier tribunal applies Redrow to accountancy services

January 2010 - Corporate tax. Legal Developments by Jones Day.

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In Airtours Holiday Transport Ltd v HM Revenue & Customs (HMRC) [2009], the tax chamber of the first-tier tribunal decided that Airtours Holiday Transport Ltd (Airtours) was entitled to a credit for input VAT on fees that it had paid to PricewaterhouseCoopers (PwC). HMRC argued that Airtours was merely a third-party payer and that PwC’s services had been provided to financial institutions, not to Airtours. The tribunal applied the ratio of the decision of the House of Lords in Commissioners of Customs & Excise v Redrow Group Plc [1999] and determined on the facts that the supply of accountancy services was made both to Airtours and the banks. Accordingly, Airtours was entitled to an input tax credit as it had been a recipient of a supply of services.

Yet another change of heart

November 2009 - Corporate tax. Legal Developments by Jones Day.

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Although it may go unnoticed by the world at large, HM Revenue & Customs (HMRC) recently issued a further release on the subject of the correct tax treatment of unapproved options. While this may appear a fairly dry subject at first, the history to the recent announcement is illuminating and highlights issues that are of concern to all taxpayers (and not just those who are affected by the recent announcement).

Laerstate: the dangers of the UK corporate residence test

November 2009 - Corporate tax. Legal Developments by Jones Day.

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Offshore corporate structures have been, and will remain, an important tool in corporate tax planning. However, there has been a renewed interest in the taxation of offshore corporates, highlighted by the recent emigration of certain high-profile listed companies from the UK. Although relating to a disposal back in 1996, the decision in Laerstate BV v HM Revenue & Customs (HMRC) [2009] has therefore arrived at an opportune time.

Calling all senior accounting officers: are you ready for your additional roles and responsibilitie

October 2009 - Corporate tax. Legal Developments by Jones Day.

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THE BUDGET 2009 INTRODUCED SEVERAL unexpected reforms to the current tax regime with arguably the greatest surprise to businesses and advisers being the introduction of legislation relating to senior accounting officers (SAO). Specifically, Schedule 46 to the Finance Act (FA) 2009 was introduced to make SAOs of large companies liable to taxes and duties in the UK, responsible for ensuring and certifying that appropriate tax accounting arrangements have been established and are maintained on an annual basis.

Cross-border VAT changes in 2010: immediate action required

October 2009 - Corporate tax. Legal Developments by Jones Day.

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The Government announced in the 2009 Budget that the cross-border VAT rules would be amended and there would be changes to the way the intra-EU reporting regime is operated. HM Revenue and Customs (HMRC) has published draft legislation and guidance setting out further information on the changes announced in the 2009 Budget.

Simplifying capital gains taxation

October 2009 - Corporate tax. Legal Developments by Jones Day.

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In the 2007 Pre-Budget Report the government indicated that it was committed to simplifying tax legislation, particularly in the areas of VAT, anti-avoidance and corporation tax for related companies. The government has now published a consultation document, ‘Simplification Review: capital gains rules of companies – a discussion document’, in relation to simplifying certain aspects of the existing capital gains rules for groups of companies.

Revised rules for the taxation of foreign profits

July 2009 - Corporate tax. Legal Developments by Jones Day.

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In the 2008 Pre-Budget Report the government announced a package of reforms to the taxation of foreign profits to be introduced in the Finance Bill 2009 (the Bill). Draft clauses were released for consultation on 9 December 2008, together with explanatory notes (the original rules). In IHL168 (p54), we focused on the draft legislation and explanatory notes published by HM Revenue and Customs (HMRC) and HM Treasury (HMT), and outlined the approach of the draft legislation.

Tribunals reform: General and Special Commissioners – RIP

June 2009 - Corporate tax. Legal Developments by Jones Day.

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As a result of Sir Andrew Leggatt’s Review of Tribunals in 2001 and the Tribunals, Courts and Enforcement Act 2007, a new two-tier tribunal structure is, over time, replacing all the old tribunals.

Changes to the grouping rules and foreign denominated losses

May 2009 - Corporate tax. Legal Developments by Jones Day.

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On 18 December 2008, the government announced that it proposed to introduce new legislation in the Finance Bill 2009 to address two distinct problems that have arisen as a consequence of the recent turbulence and volatility in the global financial markets. Although the issue has come to light with regard to the financial sector, the new rules will apply to all relevant companies and not only those companies within the banking industry.


UK-Netherlands Treaty: a new tie-breaker test to determine residence

March 2009 - Corporate tax. Legal Developments by Jones Day.

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The UK government has agreed a new convention with the Netherlands (the new Treaty), which will enter into force once both countries have completed their legislative procedures. It is expected that the provisions of the Treaty will take effect from 1 April 2009 (for corporation tax purposes) and from 6 April 2009 (for income tax and capital gains tax purposes).

The future of extra-statutory concessions

March 2009 - Corporate tax. Legal Developments by Jones Day.

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Extra-statutory concessions (ESCs) have been a feature of the UK’s tax system for decades and will continue to be made and withdrawn as necessary. However, following the decision in R (on the application of Wilkinson) v Inland Revenue Commissioners [2005], it is now clear that the scope of HM Revenue & Customs’ (HMRC’s) administrative discretion to make ESCs that depart from the strict statutory position contained in the legislation is not as wide as HMRC previously thought. 


Pre-Budget Report: impact of tax changes on businesses

March 2009 - Corporate tax. Legal Developments by Jones Day.

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The 2008 Pre-Budget Report (PBR), published on 24 November 2008, contained widely anticipated measures for individuals designed to support the economy, together with some unexpected measures to claw back some of the tax giveaways from higher-rate taxpayers in the future. The tax rate changes and temporary reduction in the rate of VAT have been widely reported in the press and accordingly this article does not attempt to summarise any of those changes. Instead, the article focuses on a number of measures that were introduced that may affect UK corporates and their businesses.


Non-domiciliaries: 30,000 reasons to be taxed on an arising basis

November 2008 - Corporate tax. Legal Developments by Jones Day.

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Changes to the residence and domicile rules were announced in the 2007 pre-Budget report. The final changes to the legislation have now received Royal Assent and can be found in ss24 and 25 and Schedule 7 to the Finance Act (FA) 2008. The revised rules are extremely complicated and will likely result in having the desired effect for HM Revenue & Customs (HMRC) of causing many non-domiciled individuals to be taxed on an arising basis of taxation (as opposed to the remittance basis of taxation), especially those non-domiciled individuals who have little in the way of foreign assets, income or gains.


Issue of HMRC guidance following Demibourne v HMRC

November 2008 - Corporate tax. Legal Developments by Jones Day.

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Following consultation with various employers and interested professional bodies, HMRC has published guidance on how it will deal with cases involving an underpayment of PAYE.


House of Lords clarifies ‘part of a trade’

November 2008 - Corporate tax. Legal Developments by Jones Day.

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The roller coaster litigation of Maco Door and Window Hardware (UK) Ltd v Revenue and Customs [2008] has finally concluded with a 3-2 victory in the House of Lords for HMRC. The point in issue was whether the phrase ‘a part of a trade’ in the definition of an industrial building or structure in s18 of the Capital Allowances Act (CAA) 1990 referred to a trade that was itself part of a composite trade or whether the phrase referred to an activity that was a constituent activity of the overall trade but not itself a trade.


Vodafone 2 and continuing uncertainty over the CFC regime

October 2008 - Corporate tax. Legal Developments by Jones Day.

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THE DECISION GIVEN BY THE HIGH COURT IN Vodafone 2 v Revenue and Customs Commissioners [2008] (published 4 July 2008) is the latest subplot to the ongoing uncertainty surrounding the application of the controlled foreign company (CFC) rules and the taxation of foreign profits.

EXTENSION TO THE DEFINITION OF ‘CONTROL’ IN FINANCE ACT 2008

It is worth noting that in spite of the uncertainty surrounding the CFC regime as a result of the pending hearing before the Special Commissioners of Cadbury Schweppes after the European Court of Justice (ECJ) decision in 2006 (Cadbury Schweppes plc & anor v Inland Revenue Commissioners [2007]) and the decision of the High Court in Vodafone 2, the Finance Act 2008 actually increases the scope of the CFC rules by extending the definition of control to companies who control the economic rights of a subsidiary (being the entitlement to dividends, proceeds on a sale of shares or assets on a winding up).

Prior to 12 March 2008, the control test for CFC purposes turned only on voting control. Although beyond the scope of this article, companies who previously have not fallen within the CFC regime will need to consider whether the extended definition of control brings any of their overseas subsidiaries within it.

Capital gains group exit-charge rules confirmed

October 2008 - Corporate tax. Legal Developments by Jones Day.

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THE COURT OF APPEAL HAS CONFIRMED THAT GROUP companies must be ‘associated’ both at the time of intra-group transfer as well as on exit from the group if the exemption from the exit charge under s179(1) of the Taxation of Chargeable Gains Act (TCGA) 1992 is to apply.

Proposed changes to late payments of interest rules

October 2008 - Corporate tax. Legal Developments by Jones Day.

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HM REVENUE & CUSTOMS (HMRC) RECENTLY published the consultation document ‘Changes to corporation tax rules on late payments of interest between connected companies’ (Revenue & Customs Brief 33/08). It has acknowledged that recent decisions of the European Court of Justice (ECJ) have questioned whether the current rules concerning late payments of interest between connected companies are compatible with the principles of European Community law, which legislate against non-discrimination.

Government backs down on taxation of foreign profits

October 2008 - Corporate tax. Legal Developments by Jones Day.

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THE TREASURY HAS MADE PUBLIC AN EXCHANGE of letters between Richard Lambert, directorgeneral of the CBI, Julian Heslop, chairman of the Hundred Group fiscal committee, and Jane Kennedy, the Financial Secretary, in which HM Treasury has indicated that it will back down on some aspects of the proposed changes to the UK tax system in relation to foreign profits earned by UK multinational enterprises.