Autumn Statement 2016: Multinationals Overview

Autumn Statement 2016: Multinationals Overview

There were few surprises for multinationals in the Autumn Statement with a firm ‘steady as she goes’ message from the Chancellor.

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The Chancellor’s observation, early on in his speech, that he was unlikely to show much aptitude for pulling rabbits out of hats won him an early laugh, but with hindsight MPs may be less sure that any joke was intended.  The mood music from HM Treasury prior to the speech had suggested dramatic changes of policy were unlikely and in the event much of the ‘news’ today comprised confirmations that proposals issued under the previous Chancellor would be followed through with.

There was a clear desire to offer some certainty and continuity to business – which became explicit with the Chancellor’s endorsement of the Business Tax Roadmap, published back in the heady pre-Brexit days of March, with its planned reductions in the corporation tax rate to 17% by 2020.  As commentators noted at the time, however, the Roadmap itself lacked a clear vision for the future of the UK’s business tax regime and there was little announced today to fill that gap.

The big announcements contained in the Roadmap were reforms to the UK’s loss regime (restricting relief for brought forward losses from 1 April 2017 in exchange for greater flexibility in offsetting these against group profits) and the UK’s planned implementation of the OECD’s base erosion and profit shifting (BEPS) proposals (particularly in relation to hybrid mismatches from 1 January 2017 and restricting interest deductions from 1 April 2017).  The Government’s commitment to all of these was repeated today, and although full details of how they will be implemented in practice are not expected until draft legislation is published next month, there are some indications of minor amendments to reflect concerns raised during the consultation process.

For the financial sector this included the widely predicted announcement that banking and insurance entities would be brought within the general scope of the interest restriction rules taking effect from 1 April 2017.  Counterintuitively, being subject to the rules is expected to benefit many of these groups, which will therefore welcome the change.  This is because the entities concerned often have net interest income and their exclusion may have caused the rules to disproportionately impact the wider group – for example, by disallowing costs incurred in funding the regulated entities.  Banking and insurance groups will now need to join other multinationals in analysing their net interest position in order to understand precisely how the rules will impact them.

Continuing the BEPS theme, documents published by the Treasury indicate that further amendments are to be made to the anti-hybrids legislation enacted in FA 2016 and due to take effect from 1 January 2017.  The proposed amendments, addressing concerns about timing claims from the financial sector and the treatment of amortisation, are noted to be needed to ensure that the legislation “works as intended”.  That these changes are needed, despite the fact that over 130 amendments were made to this legislation over the summer highlights the benefit of a more measured and consultative approach to developing tax law.

Rapid and frequently unclear changes to the legislation can themselves be a source of significant uncertainty to business and so perhaps one of the most important announcements of this Autumn Statement was not a change to tax law but a change to the way tax law is to be made.  Moving to an Autumn Budget as a single fiscal event is intended to mean fewer and better scrutinised changes in the law – something which, if delivered, would be welcomed by taxpayers and the tax authorities alike.

In an Autumn Statement which eulogised the virtues of avoiding unnecessary change it was unsurprising that few other genuinely new business tax policy announcements escaped the Chancellor’s lips.

Insurance groups have the dubious privilege of being the target of one of these, with a further rise in IPT to 12% from 1 June 2017.  Increases in IPT – which until recently stood at 6% - have become a recent theme (possibly because IPT is one of those taxes not covered by George Osborne’s ‘tax lock’).  The increase was the biggest revenue raiser among the policy changes announced and aside from motor insurance – where the impact will be mitigated by restrictions on whiplash claims – will make the cost of providing insurance higher.  Debates over who would ultimately pay for this latest increase began before the decision was announced, with industry bodies warning of a knock on impact on premiums and the Government arguing that this remains a commercial decision for the insurers themselves.

The IPT increase was in part justified by comparison to the VAT rate.  Removal of this kind of potential disparity in the tax system was a recurrent theme with changes announced to bring non-resident corporates with UK income into the scope of corporation tax, bring the treatment of performance fees incurred by offshore funds into line with that for onshore funds, and a number of employment tax changes to better align the tax consequences of differing methods of remunerating employees.

The Chancellor did hold out some prospect of future tax changes beyond fixing perceived issues with the existing system.  A review of Research & Development (R&D) reliefs has been promised and there are hints of some support for the financial sector.  Banks may take some comfort from the acknowledgement of a need “to consider the balance between revenue and competitiveness with regard to bank taxation” in light of the impending exit from the EU.  Insurers will be keenly following the promised consultation on a new tax and regulatory framework governing funding in the form of Insurance Linked Securities.

In the short term though the message from Philip Hammond was a firm ‘steady as she goes’.  Measures already consulted on will be taken forward (for example, simplification of the substantial shareholding exemption) and the Government will continue to whittle away at the ‘tax gap’ (for example, by introducing penalties for enablers of tax avoidance and preventing reliance on non-independent advice being treated as taking ‘reasonable care’), but in what for many has been a year of shocks and surprises the Chancellor clearly intends to buck the trend.

Contact

Rob Lant

+44 (0)20 7311 1853

rob.lant@kpmg.co.uk 

Multinational measures

Substantial Shareholding Exemption (SSE) Reform

Investing company requirements are to be removed, and a more comprehensive exemption for companies owned by qualifying institutional investors introduced.

Taxation of non-resident companies

The Government is to consult at Budget 2017 on bringing non-resident companies subject to income tax within the corporation tax regime.

Insurance Premium Tax - Increase in the standard rate to 12%

This increase to 12% is the third increase in the standard IPT rate in
under two years.

Government to remove salary sacrifice advantages

Following consultation, the tax and NIC advantages of salary sacrifice schemes will be removed from April 2017, with limited exceptions.

New Budget timetable

The Chancellor announced that the Spring 2017 Budget will be followed by
an Autumn Budget, marking a switch to a new annual Budget timetable.

Autumn Statement 2016

Autumn Statement 2016

The Autumn Statement took place on 23 November. KPMG's coverage is available from this hub.

Autumn Statement 2016: the measures

Autumn Statement 2016: the measures

Here you'll find links to our articles that give KPMG's take on the measures announced in the Autumn Statement 2016.

Autumn Statement 2016: SMEs Overview

Autumn Statement 2016: SMEs Overview

The message to small and medium businesses was one of encouragement, support, stability and certainty; more minor tweaks than major reforms.

Autumn Statement 2016: Individuals Overview

Autumn Statement 2016: Individuals Overview

There were few new tax announcements affecting individuals, but confirmation of pre-announced plans and measures protecting the tax base.

Autumn Statement 2016: Employer Overview

Autumn Statement 2016: Employer Overview

There were a number of updates from a people and pay perspective and there will be further reviews and calls for evidence in 2017.

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