Consultation - Non-resident companies chargeable.. | KPMG | UK

Consultation - Non-resident companies chargeable to income tax and NRCGT

Consultation - Non-resident companies chargeable..

The proposals are intended to ensure equal treatment between resident and non-resident companies on property income and NRCGT gains.

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In recent years there have been a number of changes to the taxation of non-resident companies. These include the introduction of the Annual Tax on Enveloped Dwellings (ATED) in 2013, the introduction of non-resident capital gains tax (NRCGT) on the disposal of UK residential property interests by certain non-residents, and bringing into the corporation tax (CT) regime non-resident companies which carry on a trade of dealing in or developing UK land.  As well as changes for non-resident companies, there are significant changes on the horizon for the wider CT regime, including legislation to limit the deductibility of interest expense, reform of the CT losses regime, and the lowering of the CT rate to 17 percent from 1 April 2020. Against this backdrop of changes, the Government are consulting on proposals to move certain non-resident companies from the income tax regime into the CT regime, to ensure parity of treatment between resident and non-resident companies in areas such as interest deductibility. 

The proposal, as set out in the consultation document, would bring certain companies with UK source taxable income from real property within the CT regime, the Government’s reasoning being that to introduce interest restriction and loss reform for non-resident companies by amending the income tax rules would involve significant changes. The following potential issues have been identified in the consultation document: 

  • Accounting periods – a non-resident company brought into the CT regime for the first time would have its accounting period begin on the first day on which they come into the charge to CT (6 April of the relevant financial year) with a deemed cessation of the UK property business for income tax purposes. Companies already within the CT charge will have their CT accounting period remain unaffected, with a ‘just and reasonable’ apportionment of the UK property income. In both scenarios, the Government also wishes to avoid the creation of balancing charges and allowances for capital allowances purposes. 
  • Computation of UK property business profits – The computational rules for income tax are very different to the rules for CT, including in the taxation of interest and derivatives and the use of losses.
  • CT loss reform – The CT loss reform rules will apply to non-resident companies in the same way as they are expected to apply to UK-resident companies, but will not apply to losses that arose before the UK property business came within the scope of CT. These losses will be available to be carried forward and offset against future income from the property business without restriction.
  • Interest restriction – The interest restriction rules would apply in the same way to a non-resident company as they would to a UK-resident company, to ensure fairness of treatment. 
  • Disregard Regulations – These will apply in the same way to non-resident companies brought within the CT regime.
  • Management expenses – Relief for these will only be given to the extent that they are directly linked to the taxable UK source income, with unused property losses extinguished when the UK property business ceases.

The Government’s plans do not currently include bringing income arising from a trade carried on in the UK otherwise than through a permanent establishment into the CT regime, as this is understood to only apply to a small number of non-resident companies, and bringing this income into the regime would cause much uncertainty for little practical benefit – however, the Government has stated that it will keep this area under review.

The Government also plans to bring NRCGT gains into the CT regime, with the existing computational rules remaining largely the same, but the consultation does not include plans to bring other gains into the CT regime. The consultation also indicates there are no plans to change the current practice in respect of deduction of income tax on interest and other payments. 

The consultation is silent on whether or not there will be a requirement for iXBRL tagging of accounts.

The consultation is open for comment until 9 June 2017.

 

For further information please contact :

Peter Beckett

Simon Burbridge

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