Draft Finance Bill 2018/19 included several anti-avoidance measures – this article highlights two key points.
EU Mandatory Disclosure Rules
Draft Finance Bill 2018/19 includes enabling clauses to provide for the EU Mandatory Disclosure Rules (MDR) to be enacted in domestic legislation by the end of 2019. These clauses were expected but the real detail of how the UK intends to implement EU MDR will be in secondary legislation which will be subject to consultation during 2019. There remains a lack of clarity around the Directive itself, which has the potential to be extremely broad, and how the UK will interpret it. In particular, the interaction between the EU regime and our domestic disclosure regime (DoTAS), remains unclear. It does, however, make it clear that Brexit is not expected to affect the timeline, at least for now.
Tax avoidance involving profit fragmentation
This targeted legislation aims to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The rules will commence with effect from April 2019 and will apply to an individual or a company carrying on a business within the charge to UK taxation, including in partnership.
The legislation contains a number of detailed provisions that will require careful consideration against individual fact patterns. However, broadly the rules will apply where:
Tax mismatches and the enjoyment conditions are specifically defined under the rules.
Where the rules apply arrangements must be counteracted by making adjustments that are just and reasonable. Furthermore, where conditions (a), (b), (d) and (e) above are met there will be a requirement for affected parties to notify HMRC of the arrangements.
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