Yearly Archives: 2021

27 Apr 2021

Substantial Shareholdings Exemption case – M Group Holdings Limited

The recent First-tier Tribunal (‘FTT’) decision in M Group Holdings Limited v HMRC is a salutary reminder that there are a number of detailed conditions that need to be met in order for the substantial shareholdings exemption (‘SSE’) to apply to the disposal of shares by a corporate shareholder.

SSE background

The chargeable gains tax regime was changed in 2011 to allow a group to reorganise its trading operations and qualify for a tax exemption under the SSE rules. For example, the extended rules allow SSE to apply where a group sets up a new company, transfers a trading asset to that company and sells the shares. Although there would potentially be a degrouping charge on the sale of the shares this is treated as increasing the sale consideration, such that provided SSE applies the degrouping charge is also exempted from tax. This strategy has been used in a number of cases in North Sea transactions.

The key conditions for SSE to apply are that the seller (investor) must have held a substantial shareholding in the company being sold (investee) for at least 12 months and that the investee must have been a trading company throughout that period.

If a trading asset has been transferred to the investee:

  • the investor is treated as holding the shares; and
  • the investee is treated as being a trading company;

at any time during the final 12 month period when that trading asset was previously used by a member of the group for trade purposes.

The problem

The taxpayer in M Group Holdings Limited v HMRC sought to rely on these extended SSE rules.  The taxpayer was a single company owned by an individual with no other subsidiaries.  This was the problem – the taxpayer was not a member of a group at that point in time.  The taxpayer became a member of a group on the establishment of the investee company as its subsidiary.  The investee company was established only 11 months before its sale.

HMRC contended that the rules would apply to extend the period of ownership of the investor but only to the extent that the investor was a member of a group.  As that extended the period of ownership for only 11 months, the SSE conditions were failed and HMRC asserted that SSE could not apply.  This interpretation of the rules follows HMRC’s published guidance.

The FTT agreed with HMRC that the application of the natural or ordinary meaning (i.e. literal interpretation) of the rules to the facts resulted in SSE not being available.  On review of the legislation itself, explanatory notes laid before Parliament when the law was enacted, and the relevant consultation documents, the FTT could not find anything that supported HMRC’s position as the documents did not consider the precise point.  However, that also meant that it did not assist the taxpayer’s position either.  As the FTT could not establish the intention of Parliament on this narrow point it could not use a purposive interpretation.

The FTT found that this resulted in “..the oddity or arbitrariness of SSE applying or not depending on whether there has been a separate, possibly dormant, subsidiary or other group company owned for the previous 12 months”.

The FTT went on to consider whether the interpretation produced an unjust or absurd result.  The FTT stated that “denial of SSE in the circumstances of this appeal appears odd” but it did not believe that there was sufficient clarity on Parliament’s policy intentions on this precise point to be able to conclude that this was a wholly unreasonable result.  Therefore the FTT considered that it was not permitted to allow a strained interpretation of the rules.  Furthermore, as an aside, the FTT noted that the wide interpretation of the enacted law required by the taxpayer to succeed would allow an investee to qualify if an asset was transferred to it from a trading company that had recently joined the group.  The FTT found that this would be contrary to the purpose of the legislation and therefore the wide interpretation could not be the correct interpretation of the law.

Comments

This problem in the legislation has been known for many years and it is perhaps therefore not a surprising decision.  Indeed the approach taken by the FTT is actually set out clearly in the HMRC manuals.

There seems to be no policy reason why SSE should not apply here and therefore this appears to represent a flaw in the drafting of the legislation.  However, the Courts have strict rules when interpreting legislation and as there was no clear purposive intent identified in the legislation or supporting papers the FTT did not feel able to follow anything other than a literal interpretation of the statutory provision.

Given the amounts involved, it is likely that the issue will be appealed by the taxpayer.

We have advised “single group” companies to ensure that they establish a dormant subsidiary if there is a possibility that they may wish to rely on the extended SSE rules for a future disposal.

In addition, although the facts, in this case, are perhaps unusual, particularly in the oil and gas world, there are other circumstances where the “assets used by a group condition” might need to be carefully looked at if SSE is to apply. For example where the purchaser of a company looks to on-sell assets in the acquired group within 12 months.

On a broader view, the case reinforces the point that detailed analysis of legislation is always required when seeking to understand the tax implications of any transaction.  The UK tax courts can find it difficult to interpret legislation in a way that perhaps taxpayers might expect or hope for, as opposed to what the legislation actually states.

CW Energy LLP

09 Apr 2021

Uncertain tax treatment by large businesses – second consultation opened

HMRC published a summary of responses to the first consultation and opened a second consultation to invite further views on the potential regime ahead of a proposed implementation from April 2022; any responses should be provided by 1 June 2021.

Background

In March last year, HMRC published a consultation document asking for views on the introduction of a notification requirement in respect of uncertain tax treatments for large businesses (i.e. those businesses which are in scope of the Senior Accounting Officer (“SAO”) regime).

A number of respondents expressed concerns about certain aspects of the proposal. One of the main concerns was that the definition of uncertain tax positions, being one that HMRC may challenge or is likely to challenge, was not sufficiently clear and in particular was too subjective.

See our news brief on 17 November 2020 https://cwenergy.co.uk/uncertain-tax-treatments-notification-delayed/.

The new consultation reiterates the intention of the new regime:

“This measure is not intended to promote any assumption that HMRC’s interpretation is correct, nor that HMRC is a final arbiter of tax law. The measure aims to ensure that HMRC is aware of all cases where a large business has adopted a treatment that is contrary to HMRC’s known position and to accelerate the point at which discussions occur on uncertain treatment.”

The new consultation seeks taxpayers’ views on a number of proposed changes to deal with some of the concerns raised as part of the first consultation.

Changes proposed by the second consultation

A number of changes to the regime have now been suggested. These include:

  1. A number of suggested objective triggers where a notification will be required, such as:
    • A business adopts a tax treatment that is different from HMRC’s known position (eg. published in the tax manuals);
    • A tax treatment is not in accordance with known and established industry practice;
    • A business alters a previously used treatment, where that change is not due to a change in law or a change in HMRC’s known position;
    • A structure or transaction that is in some way novel has been adopted where there is no known HMRC position;
    • Where a provision has been made in the accounts in accordance with IFRIC 23 (or other relevant accounting standards);
    • Professional advice has not been followed.
  2. Proposals that the threshold for reporting is raised to a £5m tax outcome (from £1m).
  3. Taxes within the scope of the notification requirement are to only include Corporation Tax, VAT and Income Tax (which includes PAYE). This change removes Customs and Excise and PRT (amongst others) from the scope of the regime.
  4. A notification will be required separately for each of the relevant taxes on an annual basis.
  5. The proposal is to align the notification with the due date of the tax return’s submission.
  6. A penalty for failure to notify is to be charged on the large business rather than an individual as had been originally proposed.

The government intends that the notification requirement will apply to transactions in returns due to be filed after April 2022.

Exceptions

The business will not be required to make a notification if the tax treatment has already been disclosed under a different legislative requirement or HMRC is already aware of the uncertainty.

It has been suggested that businesses with a low-risk rating under the Business Risk Review process should be excluded from the notification requirement; HMRC has outlined certain reasons why this may not be achievable although HMRC said they would explore how the business risk review process could be used to limit the scope of the measure.

Certain matters relating to transfer pricing cases may be excluded.

CWE Comments

It is clear that HMRC intends to push ahead with the new requirement from April 2022.

Although the introduction of a number of objective tests will assist businesses to understand their obligations under the regime there continues to be a fundamental difference between the test in IFRIC 23, which requires a taxpayer to take a view on the ultimate outcome of a position, and that in the proposed regime, which focuses on the likelihood of HMRC challenge.

In addition, the “in some way novel transaction” test could be interpreted very widely so that a reporting obligation could be triggered for anything that is not a business as a usual transaction.

As we have previously outlined, given that it seems likely that this regime will be introduced we believe that it is important that taxpayers factor in the possibility of a wider notification requirement when assessing the efficacy of any tax planning that they may currently be considering.  For corporation tax, with the new regime expected to apply to tax returns filed after April 2022 most currently envisaged transactions will be subject to the new regime.

29 Mar 2021

Finance Bill 2021

The Finance Bill 2021 was published on 11 March 2021.  We set out below our comments on the key provisions that may affect oil and gas companies.

Decommissioning

Overview

The Finance Bill includes amendments to clarify and expand the circumstances where expenditures on decommissioning plant and machinery may qualify for the special capital allowance relief for ring fence companies. The changes are aimed at expenditures incurred at a time where formal approval of an abandonment programme has not yet been received.

For decommissioning expenditure to qualify for the special allowance further conditions must also be met e.g. that the asset concerned has been used in the trade of the company incurring the costs.  These further conditions have not been amended.

There are three broad areas where the rules have been changed.

  1. Preparing an abandonment programme, condition or agreement

Costs incurred:

  • in preparing an abandonment programme for approval, or
  • preparing for the imposition of a condition or agreement imposed by or agreed with the Secretary of State

are treated as being general decommissioning expenditure.

When the claim is made, the abandonment programme, condition or agreement must be one that it was reasonable to anticipate would wholly or mainly relate to decommissioning of the relevant offshore plant or machinery.

  1. Preservation costs

The rules are amended so that costs incurred in preserving plant or machinery prior to the approval of an abandonment programme are accepted as being general decommissioning expenditure.  When the claim is made it must be reasonable to anticipate that the reuse or demolition of the plant or machinery will be:

  • authorised or required by or in connection with an approved abandonment programme, or
  • a condition to which the approval of such a programme will be subject, or
  • a condition or agreement imposed by or agreed with the Secretary of State.

 

  1. Costs complying with an expected decommissioning requirement

Conditions to make a claim

The rules are amended so that costs may be claimed as qualifying as general decommissioning expenditure where costs are incurred in “doing something else” which it is reasonable to anticipate will be authorised or required by:

  • an approved abandonment programme, or
  • a condition to which the approval of such a programme will be subject, or
  • a condition or agreement imposed by or agreed with the Secretary of State.

However, this “doing something else in advance of regulatory approval category of expenditure will be treated as never having qualified if the five-year clawback rule applies.

Five-year clawback rule

Unlike the “preparation and planning” costs set out above, the extension of the rules to cover costs incurred in “doing something else” in anticipation of regulatory approval is subject to a potential clawback.

The costs are treated as never having been general decommissioning expenditure unless either of the following conditions are satisfied:

  • an abandonment programme is approved and the programme, or a condition to which the approval of the programme was subject, authorises or requires the decommissioning of the plant or machinery to which the expenditure relates; or
  • a condition is imposed or an agreement is made with the Secretary of State before the approval of an abandonment programme and that condition or agreement authorises or requires the decommissioning of the plant or machinery to which the expenditure relates

within five years of the end of the accounting period in which the expenditure was incurred.

Comment:

The exact scope of the “approval” requirements has been subject to discussion between industry and HMRC for a number of years and has led to a degree of uncertainty in this area.  The explicit clarification of this area of the law is welcome, particularly the reworking of the rules around planning and preservation costs.  However, the five-year clawback rule on “doing something else” expenditures could result in unwanted commercial behaviours (e.g. decommissioning being accelerated to guarantee tax relief where it would be cheaper to delay and decommission the plant with other assets). 

While the linking of the tax code to government sanction of decommissioning has been a feature of the tax code for many years, it leaves the taxpayer having to rely on the detail provided in the government approval or condition.  Linking individual expense items to those approvals, conditions or agreements can sometimes be difficult.

Companies should continue to consider carefully these rules to make sure claimed costs qualify, and that documentation is prepared and maintained as evidence to support claims.  The maintenance of records is particularly important here as the precise nature of costs incurred in say 2021 may only be supported by regulatory sanction in 2026.

HMRC have asked taxpayers to come forward where there are any difficulties in obtaining approval from BEIS in the format required to support a deduction for valid decommissioning costs.

Other Capital allowances

As announced in the Budget a temporary increase in capital allowances rates for qualifying expenditure on plant or machinery incurred from 1 April 2021 up to and including 31 March 2023 has been introduced.  The new rules apply to three separate categories of expenditure:

  • A “super deduction” at a rate of 130% of expenditure on new plant or machinery. This applies to expenditure that would previously have qualified for an 18% writing down allowance.  Any assets used wholly or partly for a ring-fence trade are excluded from these super deduction rules;
  • A first-year allowance of 50% on most new plant or machinery that is “special rate” expenditure. This applies to expenditure that would previously have qualified for the 6% special rate writing down allowance (for non-ring fence assets).  This allowance is not prevented from applying where the asset is used wholly or partly for a ring fence trade.  Therefore, where a company has special rate expenditure on new assets that are used partly for a ring-fence trade and partly for another qualifying activity these rules can allow a non-ring fence first-year allowance of 50% to be claimed (for both the ring-fence and non-ring fence elements).
  • A first-year allowance of 100% on any (i.e. not necessarily new) plant or machinery that is not special rate expenditure where the assets are used partly for a ring-fence trade and partly for another qualifying activity. The allowance provided by this change is to be allocated to the ring-fence and other qualifying activity on a just and reasonable basis. The rules had previously allowed a 25% writing down allowance for the ring-fence element and an 18% writing down allowance for the non-ring fence element of the asset.

 

For these rules to apply the cost needs to be incurred between 1 April 2021 and 31 March 2023.  For the first two categories above, for expenditure incurred under contracts entered into before 3 March 2021, the usual rules are switched off and expenditure is deemed to be incurred when the contract was entered into.  The usual rules for determining when expenditure is incurred apply to the third category.

Comment  

While the super deduction is not available for ring fence traders, many companies may be able to take advantage of these new capital allowance rules. The interaction with the Annual Investment Allowance rule and the increase in the CT rate to 25% at the end of this period needs to however be analysed.  

Companies should do so with care as there are more conditions that need to be satisfied than is apparent from the headline.  The requirement for the asset to be new is not particularly helpful where oil companies are looking to reuse assets.

Temporary extension of trading loss carry-back rules

A temporary extension to the corporation tax loss relief rules will have an effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022. For companies with a December year-end, this will affect losses generated in the periods ended 31 December 2020 and 31 December 2021. For these periods any trade loss carryback will be extended from the current one year carry back to a three year carry back. The additional two-year carry-back is limited to a maximum of £2m per group per 12 month loss period.

For ring fence companies it will mean that losses that are not attributable (wholly or partly) to decommissioning expenditure will be capable of carry-back to the two years prior to the 12 month period currently permitted. The effect of the current one-year carryback is unchanged (and not limited by the £2m group allowance).

The Finance Bill makes it clear that where there is a decommissioning loss being carried back (under Section 40 CTA 2010) that provision shall have priority and therefore none of the £2m group allowance is used up by a decommissioning loss carry-back claim.

Comment:

The Finance Bill confirms that the ring-fence losses carried back that are attributable to decommissioning expenditure will not use the £2m group allowance. 

These rules may offer additional relief for companies with an appropriate tax profile.

Repeal of Interest and Royalties Directive

It was announced at Budget that the UK law that implemented the EU Interest and Royalties Directive would be repealed for payments made on or after 1 June 2021.

The Finance Bill also included an anti-forestalling measure that from 3 March 2021 disapplies a withholding tax exemption where a payment is made directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure that an exemption is secured.

Comment:

While these rules were of generally limited application any companies that intend to use these rules from Budget to 31 May 2021 should consider whether they could potentially be caught by the anti-forestalling measure and look to see whether a double tax treaty claim could be made in its place. If no such treaty is available to offer full relief then they may want to look at recasting arrangements to reduce or eliminate the level of withholding.

Hybrid and other Mismatches

Hybrid entities and permanent establishments

The Hybrid and other Mismatches rules are to be amended to lessen the severity of the measures that counteract double deductions and deductions for which there is no reciprocal taxable income.

The Finance Bill 2021 contains particular provisions, applied by election, which must be made by the end of this year.  Where the election is made the effect applies retrospectively. The most relevant provisions are those involving hybrid entities and permanent establishments.

These rules may apply to a UK subsidiary of a US corporation that is ‘checked’ into the US entity for US tax purposes. The original rules denied such a UK company a tax deduction if the deduction was not counted against taxable income arising both in the UK and the US (“dual inclusion income”).  In some cases, for example, the US would not recognise a receipt (on the same transaction that gave rise to the UK company’s deduction) or the US would also recognise the same expenses as a deduction and there was, therefore, insufficient dual inclusion income. Whilst the original rules made some provision for counting income derived from the expenditure as dual inclusion income, the rules simply did not address the point that in these cases there was also taxed income (in the UK hybrid) for which no deduction was allowed, where the US made payments to the UK. This imbalance has now been recognised, and such income from the US company (in this example) would now be recognised as “dual inclusion income”.

The rules are complex, they apply to all UK resident hybrid entities and to transactions with non-UK resident hybrids and the example above is simplified.

There is to be a similar provision reflecting permanent establishment income from the host company, for which the host receives no tax deduction, but the receipt is taxed in the permanent establishment.

Another measure, that is not retrospective, will permit affected UK companies to ‘use’ other UK companies’ surplus dual inclusion income on making a claim.

Connected party debt

A further amendment to the rules removes the potential for UK companies released from debts owed to connected parties (and not taxed on the release) from being caught by the hybrid rules where the counterparty receives a deduction. The potential for this issue to arise is limited in the current rules, but the amendment will address certain circumstances where HMRC recognise that the current rules are not proportionate, or don’t work as intended.

Comment:

The effect of the rules is particular to each case and relies upon identifying the transactions with hybrids. CW Energy can assist in evaluating the impact of the rules, but the new rules are welcome. 

Tax rates

As the Finance Bill contains a clause enacting the announced increase in the main rate of non-ring fence corporation tax to 25% with effect from 1 April 2023, this rate will have to be taken into account in book deferred tax calculations ending after the legislation is “substantively enacted”. A Bill is treated as substantively enacted for IFRS purposes following the third reading in the House of Commons. The Bill timetable is not currently known but if the third reading occurs before the end of June the new rate would have to be reflected in any half-year statements for companies with December year ends (or the final accounts of any companies with June year ends).

As announced in the Budget the rate of diverted profits tax is to be increased from 25% to 31% at the time the main non-ring fence corporation tax rate increases to 25%. The DPT rate applicable to ring-fence trades however remains unchanged at 55%.

CW Energy LLP
March 2021

03 Mar 2021

Budget 2021

The Chancellor delivered Budget 2021 today.  We set out below the key announcements that apply to the oil and gas sector.

Ring fence and supplementary charge to corporation tax rates

Despite the rise in the main tax rate as discussed below, there was no specific announcement on any changes to the oil tax rates.  Therefore, the rates will continue to be those currently enacted being 30% for ring fence corporation tax and 10% for the supplementary charge to corporation tax.

The Budget documents confirmed that the Diverted Profits Tax rate for ring fence profits remains at 55%.

Decommissioning expenditure

The Budget confirmed that changes are to be made to the decommissioning rules (with effect from 3 March 2021) to clarify that certain expenditure incurred by oil companies on decommissioning plant and machinery prior to the approval of an abandonment programme qualifies for decommissioning tax relief.

However, relief for such expenditure will be withdrawn if the asset on which it is incurred is not included in an approved abandonment programme, or covered by a specific agreement, within 5 years of the end of the accounting period in which the expenditure was incurred.

We would expect draft legislation to be published with the Finance Bill on 11 March 2021.

Comment: There has been uncertainty on the application of these rules for a number of years and so this change is generally welcome and should put beyond doubt the availability of relief in many cases. We believe that the requirement for the expenditure to be included within an approved abandonment programme, or covered by a specific agreement, within an arbitrary 5 years is unduly restrictive, however.  

Corporation tax main rate

Until 1 April 2023, the corporation tax main rate for non-ring fence profits remains at 19%.

From 1 April 2023, the Corporation Tax main rate for non-ring fence profits will be increased to 25%.  This rate will apply to profits of over £250,000.  A small profits rate of 19% will apply to companies with profits of £50,000   Companies with profits between £50,000 and £250,000 will be charged at a marginal rate. As with the small companies’ rate in the past, these limits operate on a group basis.

Capital allowances

A temporary increase in capital allowances rates will apply for qualifying expenditure on plant and machinery incurred from 1 April 2021 up to and including 31 March 2023.

The rates are 130% on new plant and machinery (the super-deduction) that would otherwise qualify for the current 18% writing down allowance and a first-year allowance of 50% on most new plant and machinery that would otherwise have qualified for the 6% special rate writing down allowances.

Comment

 This provision does not apply to expenditure on assets used wholly in a ring-fence trade which would generally qualify for a 100% FYA.

Temporary extension of trading loss carry-back rules

A temporary extension to the corporation tax loss relief rules will have an effect on company accounting periods ending in the period 1 April 2020 to 31 March 2022. For companies with a December year-end, this will affect losses generated in the periods ended 31 December 2020 and 31 December 2021. For these periods any trade loss carryback will be extended from the current one year carry back to a three year carry back. The additional two-year carry-back is limited to a maximum of £2m per group per 12 month loss period. For ring fence companies it will mean that losses that are not attributable (wholly or partly) to decommissioning expenditure will be capable of carry-back to the two years prior to the 12 month period currently permitted. The effect of the current one-year carry-back is unchanged (and not limited by the £2m group allowance).

Comment

The Finance Bill has not been released but we expect the new rule to take priority over the treatment of ring-fence losses attributable to decommissioning expenditure and thereby may offer additional relief for companies with an appropriate tax profile.

North Sea Transition Deal

The Chancellor made reference to the North Sea Transition Deal in the speech but there were no details other than the documents noting that a further £2 million was to be provided to “further develop industry proposals as part of the government’s support for the North Sea Transition Deal”.

UK Emissions Trading Scheme

The Budget announced that rules that were enacted to facilitate the potential introduction of a Carbon Emissions Tax will be repealed as those rules were not commenced due to the Government deciding to proceed with implementation of a UK Emissions Trading Scheme from 1 January 2021 instead.

Repeal of Interest and Royalties Directive

It was announced at Budget that legislation implementing the EU Interest and Royalties Directive which allowed payments of interest and royalties to be made without withholding tax will be repealed in respect of payments made on or after 1 June 2021.

Comment;

Now that the UK has left the EU it is not surprising that the rules are to be repealed. They were generally of limited application due to the fact that they only applied to payments between a company that directly held another or was directly held by another.    

Other announcements

There were other announcements that included:

  • Confirmation that the ‘IR35’ off-payroll working rules to large and medium-sized businesses is to come in to force from 1 April 2021;
  • Changes to support the tax-advantaged status of Freeports;
  • Changes to hybrids, tax-loss utilisation and corporate interest restriction rules.

Overall comment:

It is welcome that the Chancellor has not sought to increase ring-fence tax rates.  This can be seen as a strong signal that the need for tax stability has been heard by the Chancellor.

The extension of the rules to the carry-back of losses may allow some to make claims but with the amount set at a maximum of £2 million per annum, the impact may be marginal.

We shall analyse the decommissioning changes and other key rule changes when the Finance Bill is published on 11 March 2021.

06 Jan 2021

DAC6 Mandatory reporting rules replaced

The Government announced last week that the UK will now not implement the EU Mandatory reporting rules (‘DAC6’) in full.  Instead the UK rules for the implementation of DAC 6 have been amended to require reporting of only a limited subset of the DAC6 list of reportable transactions. This subset broadly equates to the requirement in the OECD model for reporting, and HMRC have announced that the newly amended rules will, in due course, be superseded by a disclosure regime that fully complies with the OECD’s model Mandatory Disclosure Rules (MDR). The MDR rules are far less onerous than the DAC6 rules.

Background

The DAC6 rules came into force on 1 July 2020 and required disclosure of certain transactions in 2021 and thereafter. The DAC6 rules had been criticised by many as creating an onerous administrative burden on businesses that was inconsistent with the additional information that tax authorities were expected to obtain.

The December 2020 Trade and Cooperation Agreement between the EU and the UK requires the UK to maintain a standard of reporting of transactions that is at least equivalent to OECD model reporting rules.

On 30 December 2020, the UK amended its DAC 6 domestic law so that, as an interim measure, only transactions that are of the type covered by the OECD model reporting rules will be subject to the UK DAC 6 reporting requirements.

The changes to the reporting requirements appear to apply to all transactions that are reportable under these rules and not merely to transactions that are implemented after 30 December 2020.

HMRC is expected to amend their guidance to set out their interpretation on this matter and the changes to these rules generally in due course.

Reportable transactions under the new rules

Only transactions that are included in Category D of the EU Hallmarks are required to be disclosed under the UK DAC 6 legislation as now amended.  Category D transactions are:

  • Arrangements which have the effect of undermining reporting requirements under agreements for the automatic exchange of information; and
  • Arrangements which obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.

Transactions that fall under Category D are not at all common in the oil and gas industry and therefore the changes represent a significant reduction in scope of the rules for that sector. Nevertheless, such Category D transactions are reportable; where the first step occurs

  • between 25 June 2018 and 30 June 2020:- by 28 February 2021;
  • in the period 1 July 2020 to 31 December 2020:- by 31 January; and
  • after 31 December 2020:- within 30 days.

Consultation and introduction of new rules

HMRC has announced its intention to consult on the implementation of the OECD model reporting rules, with the expectation that what remains of the DAC6 UK domestic law is to be repealed and replaced by new legislation based on the OECD model.

Comment

The DAC6 rules required a lot of effort and indeed led to a degree of uncertainty, without seemingly providing EU tax authorities much by way of new or relevant information.  Therefore, this is good news. 

However, businesses should remember that EU Member States are implementing DAC6 rules in full and therefore there will be transactions for which there is no UK reporting requirement, but there may still be an EU reporting requirement.  In addition, the DAC6 rules allowed businesses to rely on reporting transactions to one tax authority to satisfy their obligations in a different Member State.  If there is now no UK reporting obligation, that may mean a reporting obligation in other EU jurisdictions is triggered if previously the UK entity was going to make the disclosure.

Companies are also reminded that the UK has an existing disclosure of tax avoidance schemes rules, the so called DOTAS rules, and these will continue to potentially apply.

 

CW Energy LLP
January 5 2021