On 26 May 2016, the United Kingdom (UK) Government published two consultation papers: one in relation to the Substantial Shareholdings Exemption (SSE), and the other in relation to the Double Taxation Treaty Passport (DTTP) scheme. Both consultation papers are seeking comments aimed at making investment activities in the UK more internationally competitive.
Broadly, the SSE provides an exemption from UK corporation tax for capital gains and losses realised on the disposal of certain shareholdings. The aim of the consultation on the SSE is to consider whether there could be changes to make the SSE simpler, more coherent and more internationally competitive.
The paper sets out a number of options for possible reform of the SSE, ranging from technical changes to the existing legislation, to a more comprehensive exemption along the lines of the participation exemption regimes which exist in a number of EU countries. Part 5 of the consultation paper seeks comments on how the SSE can be reformed targeted towards the pension funds and sovereign funds.
In relation to the DTTP, the scheme was introduced in 2010 and aims to reduce the administrative burden for foreign companies lending to UK companies by making it easier for them to access the UK’s network of tax treaties. As the current DTTP exemption only applies to corporate to corporate loans, this has meant that all other entities were unable to participate in the DTTP scheme.
Her Majesty's Revenue and Customs (HMRC) is currently seeking comments on extending the scope of the DTTP scheme to investors entitled to sovereign immunity from UK tax (ie sovereign investors), pension funds and other entities. The consultation will enable HMRC to review the scheme to ensure that it still meets the needs of UK borrowers and foreign investors.
The SSE consultation is open for comments until 18 August 2016, while the DTTP consultation is open for comments until 12 August 2016. It is expected that the UK Government will then consider the merits of reform ahead of the Autumn Statement and possible legislation in Finance Bill 2017.