Author Archives: Leon Sroka

17 Dec 2014

Ring Fence Expenditure Supplement

Companies with December year ends will no doubt be putting the finishing touches to their corporation tax returns and year end claims and elections. Those companies will also need to look at whether it is beneficial to make, keep  in place, or withdraw ring fence expenditure supplement (RFES) claims for 2012. The normal time limit for withdrawing the claim is two years after the end of the claim period.

The process of deciding the optimum position can be difficult, particularly if it requires looking forward a number of years.

Companies will also now need to consider the draft legislation published last week setting out details of the potential additional four periods of RFES that might be available, in determining the best course of action.

In our earlier Newsbrief on the Autumn Statement we set out how we thought government might achieve their stated aim of providing an additional four periods RFES for losses and RFES arising after 5 December 2013. Having reviewed the draft legislation is clear that the actual approach adopted is quite different and may, in certain circumstances, produce unexpected results.

20 Nov 2014

CWE Staff News

Welcome additions

We congratulate Kate and Mark on the birth of their first child – a boy, Matthew Edward, weighing in at 8lbs. We hope they all get on well together and look forward to seeing Kate back at work next year.

We are also pleased to welcome Chris Waterton to the firm; Chris is well known within the industry having worked for Santa Fe, Oryx, Kerr McGee and Centrica as well as being a past chairman of OTAC.

Chris joins us to replace Laval who will be retiring at the end of this year after more than 24 years with CW Energy (and many years of service before that with the Oil and Gas team at Arthur Young).  There is no doubt that we will miss Laval’s vast experience but the experience and expertise that Chris has built up over the years will ensure that we can continue to provide our clients with the best possible  service.

Chris, Laval and the rest of the team will be working hard together over the rest of the year to ensure that the transition will be as seamless as possible.

We wish Laval all the best for his future retirement.

20 Nov 2014

UK Double Tax Treaty withholding tax rate changes

Japan and Canada

Many of the UK double tax treaties provide for a zero rate of withholding tax on interest paid by a UK company but there are still a few treaties which only provide for a non-zero reduced rate of relief.

The two main examples are Japan and Canada which to date have given rise to difficulties with financing from those countries but there have been recent changes in both treaties.

From 1 January 2015 the situations where interest can be paid at a zero rate of withholding under the UK Japanese Double Tax treaty by a UK company to a Japanese lender have been extended. A Protocol to the treaty was agreed in 2013 and will enter into force on December 12, 2014.

Under the existing treaty the rate of withholding was generally 10%. This rate was reduced a number of years ago to 0% for loans from Japanese financial institutions. Under the revised treaty the rate of withholding will now be 0% unless the interest is related to the results of the lender in which case the rate is 10%.

The UK and Canada also agreed a protocol to amend their treaty on July 21, 2014 (still to enter into force). The amended treaty includes provisions eliminating withholding tax on cross-border interest. However in this case the exemption will only apply if the interest is paid to a person with whom the payer deals at arm’s length.

The exchange of notes makes it clear that connected persons are deemed for the purposes of the treaty as not acting at arm’s length such that the existing rate of withholding of 10% will continue to apply to group loans.

The changes to these treaties are welcome and should provide companies headquarted in those countries more scope to organise their borrowings.

15 Aug 2014

Derivative contracts changes

At Budget 2013, the Government announced consultation on a package of proposals to modernise the corporation tax rules governing the taxation of corporate debt and derivative contracts.

It is likely that there will be no significant recasting of the current regime as a result of this process.

However one of the changes that has come out of that consultation is a change to the way in which the Disregard Regulations will apply to fair value profits in respect of contracts which act as a hedge.

Currently the effect of these Regulations is, inter alia, that fair value profits and losses on derivative contracts which are designated or intended to act as a hedge against an underlying transaction are automatically “disregarded” subject to the ability to “elect out”.

From 1 January 2015 many UK companies who have not already adopted IRFS will be required to apply one of EU-Endorsed IFRS, FRS 101 or FRS 102 which include a requirement to apply fair value accounting in respect of certain derivatives. As a result of the consultation process the rules are to be changed  and draft regulations have recently been published.

Where a company adopts fair value accounting for the first time in a period of account commencing on or after 1 January 2015, they will have to elect in for the disregard rules in paragraphs 7,8 and 9 to apply (such that fair value movements are ignored in computing the taxable profits for a period). Previously companies did not need to take any action as the disregard rules applied automatically.

The time limit for making the election will be six months from the start of the period for very large companies (essentially companies within the SAO rules, ones with turnover in excess of £200m or a balance sheet total in excess of £2billion) or twelve months from the end of the period for other companies (assuming that there relevant contracts in place at the start of the relevant period). These companies will then be subject to an initial lock-in period of three years. Thereafter companies will be able to make or revoke an election at any time.

For companies who are currently applying fair value accounting, grandfathering rules effectively mean they are treated as having elected into the disregard regulations (as they are to apply from 1 January 2015) such that no action is required to preserve the disregard treatment. However these companies will have the ability to “revoke” this deemed election should they wish to be taxed on fair value movements at any time in the future on a prospective basis.

The exception is for companies who have previously made an “opt out” election which are effectively treated as remaining outside the disregard. These companies would however have the ability to elect for a disregard treatment under the new rules, again on a prospective basis.


Companies who are looking to adopt fair value accounting for the first time will need to carefully consider their options. Although the new regulations offer greater flexibility there is a three year lock in for new adopters.

In deciding what option to take new adopters also need to be aware of the effect of the change of accounting  policy transitional rules which may spread the recognition of fair value profits and losses as at the date of adoption.

For companies which are already within the scope of the Disregard Regulations there is no need to take any action at the present time. The change in approach may however offer additional flexibility in the future.

Consultation on the changes to the regime will run until 12 September.

If you would like to discuss your options please contact Paul Rogerson 020 7936 8309 or Stewart Norman 020 7936 8315 or your normal CW Energy contact.