05. BPT - International Expansion Flashcards
When is a company defined as a UK resident?
- Incorporated in the UK
- Centrally managed and controlled from the UK (deemed resident)
How do you determine whether the location of central management and control?
- Where the head office is situated
- Location of board meetings
- Where directors spend most of their time
What must be done if there is ‘dual residence’?
If comp is resident in more than 1 country, then a double tax treaty will act as tie breaker
- Most treaties follow OECD model agreement (comp should be resident where it is ‘effectively managed and controlled’)
How do you establish whether a PE/branch exists?
Look at whether business is carried on through a fixed place For example - Place of management - Branch or office - Factory/ workshop
All of the above give rise to a ‘taxable presence’ and therefore CT may be due on any profits arising
Why is residence and e-commerce a complicating issue?
- Issue is whether a website or server located in UK of non-res comp constitutes a permanent establishment
- Key determinant is whether a ‘physical presence’ has been established in that country
- But tax legislation states that profits arising from a PE should be taxed in country which PE is based. UK tax leg makes no ref to ‘physical presence’
- Leads to complications when a bus is carried on over the internet as UK and OECD has diff views
What is the UK view vs OECD view on residence and e-commerce?
UK view
- Website is not a PE
- Server is not a PE
OECD view
- A website is not a PE
- A server could be a PE: if it performs activities such as taking orders, processing payments and arranging delivery of goods
If a comp is a UK resident, what do they pay CT on?
- UK res must pay CT on worldwide income and gains (including profits of an overseas permanent establishment)
But the comp can make an irrevocable election for all its foreign income PE to be exempt from CT (but also no loss is avail for the losses)
If an election is made for all its foreign income PE to be exempt from CT, when does it become effective?
Effective from the start of the acc period after the one in which the election is made
What does a non-UK resident company pay tax on?
What about other UK income received by non-resident company?
If it is
- Carrying on trade in the UK through a PE
- Has profits from dealing in/ developing UK land (even if it has no UK PE)
- Has gains on assets that are either interests in UK land or UK property rich assets
- Receives UK property income
- Other UK income received by non-res company is subject to basic rate income tax (e.g. if non-UK resident comp carries on a trade in the UK without having a PE)
If an overseas company carries on a UK trade through a PE, what do they pay CT on?
- Trading income arising from/ through the PE
- Property income from property held by PE
- Gains on assets held by the PE
When is a gain arising from a disposal by non-UK res company subject to CT?
From 6 April 2019, payable if the asset was either
- UK land (residential or commercial)
- UK property rich assets whereby the non-K re comp owns a substantial indirect interest (defined as owning at least 25% of shares at the time of disposal or at some point in 2 yr period before disposal)
Define a property rich asset
An asset (likely to be shares) that derives at least 75% of its gross asset value from UK land
If the UK land is used for trade purposes of the UK company the gain is exempt
Letting property is not classed as trade
How is UK land and property rich assets taxed?
Any elections avail?
if the asset was purchased by the company post April 19, the full gain is subject to CT
If asset was purchased before April 19 its treatment depends on the class of asset
- Disposal of UK residential prop have been in charge to UK CT since April 15
When calc the gain, the MV in April 15 is treated as allowable cost
- 2 possible elections available
» Comp can make an election to replace Apr15 MV with original cost. (fi does this, a further election is avail)
» Gain based on orig cost an then be time apportioned based on prop of the months of ownership that fall after Apr 15
How is UK non-residential property and property rich assets taxed?
Any elections avail?
They have only been chargeable to CT since Apr 19 (unlike UK which is 2015)
When calc the gain, the Apr 19 MV is treated as allowable cost
Only 1 election is available
» Comp can elect to perf the calc using orig cost (calc can’t subsequently time apportioned)
If this treatment leads to loss, loss is not allowable if it relates to UK prop rich assets
How is UK property income taxed for non-resident companies?
- Until 1 Apr 20, other UK income of a non-resident company was subject to basic rate income tax e.g. letting income from UK prop
- From 1 Apr 2020, income that non-res comp receives from UK prop is changeable to CT rather than IT
- Fin costs relating to UK prop bus will also be subject to CT as NTLR (prev subj to IT rules)
Define a migration of trade
A company resident in the UK due to CM&C being located in UK becomes non-res by virtue of moving the location of its CM&C overseas
What are the tax implications of a migration of trade?
Similar to company ceasing to trade
1. End of an acc period
2. Balancing adj to P&M attracting cap all
3. Inventory will be treated as disposed of at MV
4. Utilisation of trad losses
5. Change in basis of assessment
» UK res = UK tax on WW profs
» Non-Uk res = UK tax on profits of UK PE, dealings in UK land and UK prop income
6. Loses the benefit of being in a UK group
7. Comp will be deemed to have disposed and reacquired all WW assets at MV at migration date (except all assets w/in charge of UK CT). Leads to gains arising on chargeable assets and profs on IFAs held as trading assets. (Known as exit charge)
