Tax Update. PwC Isle of Man, 14 November 2018

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1 PwC Isle of Man, 14 November 2018

2 Today s agenda Budget Update Kevin Cowley 2. UK Property Changes Andrew Cardwell 3. EU Listing Process - Substance Nicola Skillicorn, Deputy Assessor of Income Tax 4. Indirect Phil Morris & Sandra Skuszka, Collector of Customs and Excise 5. Q&A PwC 2

3 OECD EU UK USA Quote of the week All Tax avoidance should be a criminal offence. PwC 3

4 2018 Budget Update Kevin Cowley, PwC Isle of Man

5 Offshore Receipts & Intangible property (1) HMRC Policy paper 29 October Who is likely to be affected? Large Multinational groups holding intangible property in low tax jurisdictions Where income arising in a low tax jurisdiction in respect of the IP is referable to the sale of goods or services in the UK 2. Jurisdictions who do not have a full tax treaty with the UK ( 10m UK sales de minimis) 3. UK Income tax charge on gross income 4. Exemption for non-high risk IP and where income sufficiently taxed elsewhere PwC 5

6 Offshore Receipts & Intangible property (2) Typical structure; Sales IP revenue Dutch Co Payment IOM IPCo IoM IPCo Subject to UK income tax on gross IP payment ( 10m sales de minimis) PwC 6

New Digital Tax The DST will apply from April 2020 after consultation a UK territorial tax, reflecting extremely slow progress on a new international standard A 2% tax on revenues of certain UK

7 New Digital Tax The DST will apply from April 2020 after consultation a UK territorial tax, reflecting extremely slow progress on a new international standard A 2% tax on revenues of certain UK digital business Reflecting revenues derived from participation of UK users Search engines, social media, platforms and digital market places Total revenues > 500m, UK revenues over 25m Safe-harbour provisions PwC Date 7

8 Avoidance measures 1) Offshore tax compliance strategy publish an updated strategy to build on progress made 2) Profit Fragmentation: Prevent UK trading businesses (note) from avoiding UK tax by recording UK taxable profits in low tax jurisdiction Focussed (TP) Legislation to follow Note: Aimed at UK persons (e.g. sole trader, partner, company shareholder) 8

9 Other measures Trust Taxation: A consultation on the taxation of trusts to follow The aim is simplification Published 7 November 2018 Objective: Address any remaining opportunities to use trusts, particularly offshore trusts, for tax avoidance or evasion Stage 1 = information gathering 9

10 UK Property Changes Andrew Cardwell, PwC Isle of Man

11 New CGT Charges April 2019 Gains on disposal of residential property by non-uk residents already within the scope of UK tax: ATED CGT for enveloped properties From April 2013 Non-Resident CGT From April 2015 Broadened NRCGT from 6 th April All gains on all forms of UK real estate held by all forms of NRCGT to be charged to: CGT Individuals, trusts Corporation tax Corporate entities/ unit trusts Gain based upon original cost or April 2019 market value for properties not previously within ATED CGT/NRCGT 11

12 New CGT Charges April 2019 Applies to direct and indirect disposals of property Indirect disposal shares in property-rich companies 75% + of gross asset value (market value) derived from UK land Exemption if holding < 25% of company equity (with a two year look-back) Includes direct and indirect holdings of that person Connected persons are aggregated Gain based on share values (not underlying assets) Targeted anti-avoidance provisions applies treaty abuse 12

13 Non-Resident Property Companies Non-resident companies with UK property income rentals and similar Corporation tax applies with effect from 6 th April 2020 Should transition almost seamlessly from income tax regime to corporation tax regime: File SA700s (Non-resident income tax return) to 5 th April 2020 File CT600s (Corporation tax return) from 6 th April 2020 Companies with capital allowance pools simply carried into CT regime Income tax losses carried forward as CT losses (but locked into the company for future use) Administration: CT600s a little more tricky, requires ixbrl (accounts tagging) 13

14 Non-Resident Property Companies UK Tax Impact: All income and capital gains* taxed at 19% (currently flat 20% on income) Groups of companies: potential group loss reliefs Corporate Interest Restriction: Interest deduction limited to 30% of EBITDA o If annual interest payments > 2m o Worldwide debt cap * although these will all be within scope from April 2019 in any event 14

15 SDLT Consultation Consultation set for January 2019 Surcharge of 1% on foreign buyers of residential property But only residential property in England and Northern Ireland It s difficult to comment any more at this stage 15

16 EU Listing Process - Substance Nicola Skillicorn, Deputy Assessor of Income tax

17 Background 2016 EU Code of Conduct for Business Taxation List of Non Co-Operative Tax Jurisdictions Screened 92 Jurisdictions Criteria 1. Transparency 2. Fair Taxation 2.2 Existence of tax regimes that facilitate offshore structures which attract profits without real economic activities. The jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction. 3. Anti-BEPS Measures 17

18 Relevant Sectors Identify Relevant Activities & Sources of Income (Tax Return) Introduce Substance Requirements for Geographically Mobile Activities Banking Insurance Fund Management Financing & Leasing Distribution & Service Centres Headquarters Shipping Holding Pure Equity Reduced Requirements Intellectual Property (IP) Enhanced Requirements

19 Substance Substance Demonstrate company is directed and managed in the Isle of Man; Board of Directors meet in the Isle of Man at least once a year; During meetings in the Isle of Man, quorum physically present; Strategic decisions must be set at meetings, reflected in minutes; Board as a whole must have the necessary knowledge and expertise; All records kept in jurisdiction. Conduct Core Income Generating Activities (CIGA); Adequate level of employees; Adequate level of annual expenditure; and in the Isle of Man Adequate physical offices/premises 19

20 Illustrative Flowchart Is the company tax resident in the Isle of Man? Yes No Substance Requirements Not Applicable Does the company have income from operating in a relevant sector? No Substance Requirements Not Applicable Yes Is the company a Pure Equity Holding Company? No Yes Is the Company Compliant with Corporate Law Filing Requirements? Yes Is the company a High Risk IP Company? Does the company have adequate people and premises? No Yes Yes Company Meets Substance Requirements

21 Illustrative Flowchart Company Subject To Exchange of Information Company Subject to Higher Evidential Threshold in respect of CIGA Is the company directed & managed in the Isle of Man? Does the company have adequate people? Does the company incur adequate levels of expenditure? Does the company have adequate premises? Does the company conduct its CIGA in In the Isle of Man? No Company Subject to Sanctions Yes Company Meets Substance Requirements

22 Next Steps December 2018 Substance legislation presented to Tynwald January 2019 New requirements applicable to Relevant Sector companies for accounting periods commencing on or after 1 January 2019 February/March 2019 EU listing decision expected 2020 Companies commence filing of new tax returns 22

23 Further Information ITD Website Draft Legislation Key Aspects Note

24 Nicola Skillicorn Deputy Assessor Treasury - Income Tax Division Government Office Bucks Road Douglas Isle of Man IM1 3TX Telephone: +44 (0) nicola.skillicorn@itd.treasury.gov.im

25 Indirect Phil Morris & Sandra Skuszka

Your PwC team Kevin Cowley Tax Partner, PwC

cowley@pwc.com +44 (0) 1624 689465 andrew.

26 Your PwC team Kevin Cowley Tax Partner, PwC Isle of Man Andrew Cardwell Tax Director, PwC Isle of Man Phil Morris VAT Director, PwC Isle of Man +44 (0) (0) (0) PwC 26

27 Any questions?

28 Thank you pwc.com/im This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Not for further distribution without the permission of PwC PricewaterhouseCoopers LLC, an Isle of Man limited liability company. All rights reserved. PwC refers to the Isle of Man member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details.

Annual Tax Update 2017

www.pwc.com/im Annual Tax Update 2017 Agenda The Offshore Agenda Kevin Cowley Domestic and International Tax Affairs Treasury Minister Alf Cannan UK Property and deemed domicile Andrew Cardwell Indirect