Overseas tax - Chapters 1 - 5 Flashcards
When does a non-UK resident company have a UK PE?
If it has either:
- A fixed place of business in the UK; or
- An agent who has and habitually exercises authority in the UK to carry on business activities on behalf of the company.
What are examples of when a non-UK resident company does not have a UK PE?
- If it carries out business in the UK through an independent agent
- If activities in the UK are of a preparatory or auxiliary nature (i.e. storage, market research, delivery of goods)
When are activities part of a fragmented business operation?
- They are carried on by the company in question;
- The activities constitute complementary functions;
- The combination of functions would give rise to a PE if performed by a single company.
What is specifically disallowed as a deduction when calculating profits in a PE?
Deductions for interest or royalty payments to the non-UK resisdent company (Would essentially be paying themselves)
Note - Does not include subs of the non-UK resident company these would still be allowable
How do we calculate the profits attributable to the UK PE?
We use the ‘Separate enterprise’ principle and transactions with the non-UK resident company are treated as taking place at arm’s length
What is a property rich company?
A company with at least 75% of it’s assets is from UK land
When did UK property rentals from non-UK resident companies come into the charge for CT and what was the main driver for this?
Came into charge for CT on 6 April 2020
Main driver was CIR rules (Companies would be taking out loans to purchase properties and have no restriction on interest deductions)
What is the non-resident landlord scheme (NRLS)?
NRLS is when income tax is withheld at 20% quarterly then offset against CT with a return
What are the two tests for an indirect disposal of UK land?
Test 1 - 75% Test - Is the disposed of company property rich (i.e. 75% assets are UK land)
Test 2 - 25% Test - Does the Non-UK resident company own at least 25% of the company disposed of
What are the key dates where UK land came into the CT charge for non-UK resident companies?
Residential property - 6 April 2015 - Rebase cost 5 April 2015
Non-residential/shares in property rich company - 6 April 2019 - Rebase cost 5 April 2019
What is the irrevocable elections agents (not tenants) can make for calculating allowable finance costs?
Can elect to simplify calculation to avoid applying CIR rules
Can dedcut 30% of rental income net of deductible expenses (any unused allowance can be carried forward) (any excess finance costs can also be carried forward)
What must a non-UK resident do if they wish to own UK land and what are the consequences of not doing this?
Must register on the ‘Register of Overseas Entities’
Failure to register is a criminal offence and can cause a daily penalty of £2,500 to arise.
What is the de-minimus to report under international movement of capital requirements?
Transactions that exceed £100m
What is the penalty for not complying with reporting requirements for international movement of capital?
Initial fine of £300 and £60 each day on which the failure continues
What are the two ways a company can migrate out of the UK?
- Move CMC from UK to non-resident territory then rely on tie-breaker clause in DTT where residence will be decided by mutual agreement taking POEM and other relevant factors into consideration
- Corporate inversion
What is a corporate inversion and what is the 5 step process to implement?
Putting a non-UK resident holding company on top of a UK company.Steps are as follows:
- Create new holding company in overseas territory
- Shareholders exchange shares in UK company for shares in new company (S4S exchange)
- New holding company is now on top of UK company
- UK Company transfers any subs to new holding company (SSE may apply if criteria is met)
- UK Company is liquidated
What are the tax implications of migration?
When a company migrates, it will no longer be in the charge for CT therefore, is treated as if it has ceased to carry on trade. Implications are as follows:
- Must settle all outstanding UK CT payable (Exit charge)
- An accounting period will end
- Stock treated as disposed of at MV
- Balancing charges will arise on P&M
- Loan relationships treated as disposed of and immediately reacquired at FV
- IFAs treated as disposed of and immediately reacquired at MV
- Capital assets are deemed to be disposed of and immediately reacquired at MV
- Derivitives treated as assigned and immediately reacquired at FV
What is an exit charge payment plan (ECPP), when does it apply and what are the payment dates?
An ECPP is plan that allows migrating company to pay it’s exit charge in 6 equal annual instalments (These are interest bearing).
This applies when a company migrates to an EU or EEA territory.
Payment for the 1st instalment is due 9 months and 1 day after the end of the AP then another 5 payments annually
What must a UK company do before migration?
They must notify HMRC of when they expect to cease being UK resident and provide a statement of the tax payable before migration
If a company does not notify HMRC they could be liable to a penalty up to the amount of tax due
What are key considerations for choosing the location of a group holding company?
- Corporate tax rates - Companies would want a lower tax rate
- Financing costs - Companies would want to obtain tax relief for financing costs
- Taxation of dividends, Interest and royalties - Would want to minimise tax payable
- DTT network - Would want a jurisdiction with a wide DTT network
- Participation exemption - Similar to SSE in the UK
- Exit taxes - Would want to minimise charge on leaving a jurisdiction
What are the five conditions to postpone gains on incorporation of an overseas PE?
What is the only difference for IFAs?
- A UK resident company has been carrying on a trade through an overseas PE
- The trade and assets of the PE are transferred to a non-UK resident company
- The transfer is wholly or partly in exchange for securities (Shares) issued by the transferee to the transferor
- Following the issue of shares, the transferor holds at least 25% of the shares of the transferee
- There is a net chargeable gain arising on the transfer
For IFAs conditions 1-4 are the same and condition 5 changes to:
- The transfer must be for genuine commercial reasons
When would the postponed gain on incorporation of an overseas PE come into charge?
The gains are deferred to the earlier of:
- The disposal of the assets (within six years)
- The sale of the shares in the overseas subsidiary
This is the same for IFAs
What are the special rules for EU PEs under s.140(C) TCGA 1992?
If a UK resident company transfers an EU PE to a company in an EU member state then a credit is given against UK tax for any foreign tax that would have been payable.
What are the five conditions to meet the special EU rules?
- A UK resident company transfers an EU PE to a company that is resident in an EU member state
- The transfer includes all assets used for the purposes of the business (excluding cash)
- The transfer is wholly or partly in exchange for securities (Shares) issued by the transferee to the transferor
- There is a net chargeable gain arising on the transfer
- The transfer takes place for bona fide commercial reasons
