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Draft Finance Bill 2018/19 - Anti-avoidance measures

Draft Finance Bill 2018/19 - Anti-avoidance measures

Draft Finance Bill 2018/19 included several anti-avoidance measures – this article highlights two key points.

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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:

  1. There is a ‘material provision’, which requires receipts or expenses to be attributed to an overseas party rather than to a UK resident person carrying on a business;
  2. The ‘material provision’ relates directly or indirectly to anything done in connection with a business which is subject to UK tax;
  3. The ‘material provision’ is not on arm’s length terms;
  4. The ‘material provision’ results in a tax mismatch; and
  5. A relevant individual, who is the UK resident person, or is a member of the partnership including the UK resident persons or a participator in the company who is the UK resident person meets the enjoyment conditions.

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.

 

For further information please contact: 

Sharon Baynham

T: +441189644926

E: Sharon.Baynham@KPMG.co.uk

Paul Harden

T: +442076945419

E: Paul.Harden@kpmg.co.uk

 

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