Annual Tax Update 2017

Transcription

1 Annual Tax Update 2017

2 Agenda The Offshore Agenda Kevin Cowley Domestic and International Tax Affairs Treasury Minister Alf Cannan UK Property and deemed domicile Andrew Cardwell Indirect Tax Update Phil Morris Questions? Finish by 10:00am

3 The Offshore Agenda Kevin Cowley Isle of Man

4 Understanding the tax transparency landscape: The UK Agenda: An unstoppable force March 2013 No Safe Havens (HMRC s Offshore Evasion Strategy: Resource and AEOI commitment). April 2016 A strict liability criminal offence for offshore tax evasion announced. June 2016 UK companies to begin filing their register of Persons of Significant Control (publically available via Companies House). September 2016 HMRC receive data under UK FATCA about offshore accounts held in the CDOT. HMRC to use their Connect software to analyse/compare UK FATCA information to other sources, e.g. UK land registry and DVLA. January 2017 Legislation giving effect to the EU 4 th Anti-Money Laundering Directive, and requirement for registers of beneficial ownerships, to be enacted this year (see later). April 2017 The Requirement to Correct (RTC) window opens.

5 Understanding the tax transparency landscape: The UK Agenda: An unstoppable force (cont) September 2017 HMRC to receive information regarding offshore assets from all early adopter countries under CRS. Corporate criminal offence of failure to prevent the facilitation of tax evasion introduced. September 2018 CRS round 2: HMRC to receive info. regarding offshore assets from all late adopters Tougher Failure to Correct Penalties will apply. Key Messages 1) The onshore v offshore position is now (deliberately) imbalanced. 2) Continuing UK and international measures should be considered the norm (e.g. as BEPS continues, next in line, digital business)

6 The Requirement to Correct - overview A new obligation known as a Requirement to Correct is being introduced in the UK. Taxpayers are currently in a window which ran from April 2017 to September Those with offshore interests are being asked to review their affairs to ensure that all UK tax liabilities created by these interests are correctly declared. Includes individuals and offshore trustees. Once this window closes, someone who has made an error in reporting or failed to report income or gains arising from offshore assets may face very significant penalties when this comes to light [Up to 200% TGP, 10% asset value, name and shame]. This creates a biased tax regime, intentionally trying to discourage /penalise offshore investment/activity.

7 The Requirement to Correct -What to do? Check your tax affairs now Identify areas of risk (e.g. 10 year trust returns, treatment of complex offshore items). Review returns and identify any deficiencies. Consider the options to remediate. Consider how to disclose if necessary There are several ways to approach HMRC if you have something to put right for example: Amend a recent tax return; Worldwide Disclosure Facility (open on current terms until 30 September 2018); Contractual Disclosure Facility (Code of Practice 9); Informal approach.

8 Failure to prevent the facilitation of tax evasion where are we now? 1) WEF 30 September 2017, organisations strictly liable if any associated persons (including employees) criminally facilitate the evasion of tax 2) ONLY defence = demonstrate reasonable prevention procedures in place 3) Jurisdictional position beware the reach of HMRC! What are reasonable procedures? Risk Assess (Include DD) Amend procedures Top-down commitment Communication/training Note: modelled on the UK Bribery Act. On-going monitoring

9 The UK Beneficial Ownerships of Trusts (1) UK response to EU s 4 th Money Laundering Directive What is it? A requirement for ALL trustees who have UK tax obligations to register the trust in HMRC s online portal (replace old 41G ) UK tax obligations: Income tax IHT SDLT SDRT CGT (NRCGT) Details? Settlor, all beneficiaries, all potential beneficiaries, classes of beneficiaries: look through to individuals, regardless of their country of residence 1 ST year registration go-live was 6 October 2017 BUT on-line system not operational! Extend to 5 December 2017

10 The UK Beneficial Ownerships of Trusts (2) Issues for Trustees Data Protection: No provision in IoM law to provide this information (as for FATCA/CRS where local legislation required) Risk of breach of IoM DP rules IoM Trust Law : Disclosure in conflict with IoM legislation position?

11 What does the Future Hold (1) Consultation: Taxation of Non-Resident (Property) Companies Take NRL companies from income tax to corporation tax; CT rules to apply (e.g. Re debt); CT rate (19%) < IT rate (20%); No intention to tax capital gains. Making Tax Digital Automatic filings on a ¼ly basis based on pre-populated data; True up at Year End; NRL s, sole traders, partnerships; Highlight tax changes well in advance.

12 What Does the Future Hold (2) Autumn Statement Budget Wednesday 22 November 2017 SDLT climb-down to stop the current stall in the UK property market o 1m + homes (30% of SDLT revenues) o Encourage pensioners to downsize o Move liability on seller to encourage up sizing (especially first time buyers) Pensions Further restrictions on relief? EIS relief Reduced availability, toughen conditions?

13 Where are we now? Doing business offshore Imbalance? Consolidation Sources/types of work Local business Substance! Substance! Substance! Offshore Onshore? Reporting information Establishing a presence e.g. EIS relief for non-resident company, advice = how to establish a PE

14 Domestic and International Tax Affairs Treasury Minister Alf Cannan MHK

15 UK Property and deemed domicile Andrew Cardwell Isle of Man

16 Offshore Structures & UK Property

17 UK Residential Property

18 UK Residential Property New Inheritance Tax ( IHT ) Provisions Finance Act (No.2) 2017 wef 6 April 2017 Due for introduction in FA 2017 pulled at last minute Introduced by FA (No2) 2017 effective 6 April 2017 An effective look-through for offshore companies & similar vehicles for IHT purposes Company/LPs ownership - treated as owned directly by shareholder (beneficial) Trust & Company - directly by trustee

19 UK Residential Property New IHT Provisions Non-UK Resident Non-Dom IoM Co UK Resident Non-Dom IoM Trust IoM Co UK Residential Property UK Residential Property Gift of Shares PET Death charged in estate Within 10 Year IHT Exit Charge Regime

20 UK Residential Property New IHT Provisions Deductions for Debt Yes, but. S/holder Bank S/holder Prop Co Prop Co Debt Fin Co Net value is chargeable Net value is chargeable + internal debt

21 UK Residential Property A ROUND-UP (1) Non-Rental Properties the London Pad Exposed to IHT ATED provisions apply (if value > 0.5m): Annual charges based upon value ATED CGT charges on sale/effective disposal Punitive charge to SDLT for new purchases Free use of the property may give rise to: Matching trust income & gains B-I-K for standalone SPV (or T&C structure)? Market rent paid circumvents but UK income tax liability arises 20% on companies Additional charges (up to 45%) on settlor of trust if UK resident

22 UK Residential Property A ROUND-UP (2) Property Rental Business Exposed to IHT No ATED charges Income tax 20% Settlor of higher rates? Within NRCGT charge (since April 2015)

23 UK Residential Property Property Rental Business UK tax benefits now limited to. Income tax for non-residents holding investment property via offshore companies (but only higher net rentals) Companies - restricted to 20% rate Individuals - up to 45% Non-tax reasons: privacy/confidentiality wealth management long-term asset protection

24 UK Commercial Property

25 UK Commercial Property A ROUND-UP IHT: No issues (if correctly structured) Company for Non-Resident/Non-Dom ( NR/ND ) Trust & Company for Resident/Non-Dom ( R/ND ) CGT: No immediate UK CGT issues No CGT at all for NR/ND Deferral (possibly more) for R/NDs Income Tax: 20% Settlor of higher rates?

26 UK Commercial Property Other Points of Note Kevin Cowley, Tax Partner VAT option to tax Capital allowance claims Tax deductions and particularly finance costs

27 UK Commercial Property.and to finish on UK Property Property Development & Trading Both Residential & Commercial A bit of history now - changes effective July 2016

28 UK Property Trading Residential & Commercial Developments Trading in UK land by IoM companies no more protection via UK/IoM DTA [Para 3(2)] now reference to immoveable property UK Corporation Tax and Income Tax Codes to tax domestically Catches any case where there is an intent to generate profits or gains* from sale of land either when acquiring or with a later change of intention * Gains not genuine capital gains, directed at one-off speculative gains which HMRC might find difficult to argue as being a trade under UK case law

29 The new Deemed Domicile Provisions

30 Deemed Domicile New Deemed Domicile Provisions Finance Act (No.2) 2017 wef 6 April 2017 New 15/20 Rule UK incomers from Day 1 of 16 th year of tax residence UK Leavers: 15/20 Rule and 4 Year Rule UK Returners (formerly UK born & dom individuals) Worldwide income & gains (immediate) IHT on worldwide assets (after first tax year of tax residence)

31 Deemed Domicile Impact..once deemed domiciled: 1. Unable to claim remittance basis of taxation at any cost 2. Taxable on all worldwide income and gains 3. Worldwide basis for IHT (which was the case pre-6 April 2017) In essence, a UK resident and deemed domiciled individual is treated for all UK tax purposes like any other UK resident national

32 Deemed Domicile: Impact on Trusts What to do now if approaching Deemed Domicile? Settle an Excluded Property Settlement (i.e. IHT efficient structure) Next best thing to Remittance Basis once it s lost Once created, we have the concept of the Protected Settlement to consider when the settlor becomes deemed domiciled Care needs to be taken or certain UK tax efficiencies could be lost

33 Deemed Domicile: Impact on Trusts Protected Settlement Protection for Income Tax & CGT purposes Protected: UK tax on trust distributions/benefits only Lost Protection: settlor taxed on income/gains as they arise When is the protection lost? Settlor is a returning UK born/dom individual Settlor acquires UK domicile of choice (general law principles); Additions to trust funds ( Tainting )

34 Deemed Domicile: Impact on Trusts What is Tainting? Adding funds to a settlement once the settlor has become deemed domiciled Who can Taint? Settlor ( S ), or Trustees of another settlement where S is the settlor or beneficiary

35 Deemed Domicile: Impact on Trusts When Does Tainting Occur? When value is added to a settlement by way of. Cash or Other Assets Loans to Settlement: non-commercial/repayable on demand - tax year 2017/18 to deal with existing loans includes loans to trustees of another trust in which S is settlor or a beneficiary Interest at the HMRC official rate (currently 3%) charged and actually paid each year it s fine, no tainting Services Provided to Settlement e.g. settlor acting as property agent and not at arm s-length

36 Deemed Domicile: Impact on Trusts What Tainting Isn t Arm s-length transactions bona fide commercial Trust expenses (tax, administration, etc.) if not covered by annual income the deficit only Pre-6 April 2017 liabilities legally binding commitment to add property which was entered into prior to date of changes

37 Deemed Domicile: Impact on Trusts Summary: Tainting Take care, don t taint: Entire fund inefficient for IT/CGT as if the settlor owns assets direct - taxed on settlement income & gains as they arise Additional funds settled within IHT net

38 Deemed Domicile: Impact on Trusts Impact on Trusts: Tainting Pre-6 April 2017: only partially tainted Original Settlement: Excluded Property Later Settlement: Relevant Property Income Tax CGT IHT

39 Deemed Domicile: Impact on Trusts Impact on Trusts: Tainting Post-6 April 2017 ALL tainted Original Settlement Excluded Property Later Settlement Relevant Property Income Tax CGT IHT original settlement still efficient (later settlement not)

40 Indirect Tax Update Phil Morris Isle of Man

41 Agenda Brexit VAT in the GCC VAT simplification VAT recovery and holding companies Making tax digital Revenue sharing arrangement

42 Brexit - What does this mean for the Isle of Man? Free trade and indirect tax relationship with the UK (by virtue of Protocol 3 to the UK s Treaty of Accession), and by extension with the rest of the EU. IoM businesses currently enjoy free movement of goods within the EU market as a result no immediate change. The IoM relationship with the UK under the 1979 Customs and Excise Agreement stands so there will continue to be free trade between the Island and the UK. Today and for the immediate future there are no changes in the taxes IoMC&E administer or the services IoMC&E provide. The current VAT revenue sharing arrangement with the UK should provide a stable mechanism for the distribution of VAT receipts in the short to medium term.

43 Brexit - Who will be impacted? Financial services VAT exemptions. VAT recovery. EU Importers / exporters A new Customs border. Customs duty implications. Increased compliance. More barriers to trade. Aircraft and yacht sectors Impact on new yachts and aircraft. What about existing yachts and aircraft? Retail and consumer distance sales thresholds or EU VAT registrations. Additional import VAT and duty costs for consumers.

44 Brexit - Latest Developments? Importance of Authorised Economic Operator (AEO) accreditation. An interim period of transition - a "close association" Recent UK Government paper. A highly streamlined customs arrangement using technology. A new customs partnership - UK mirrors the EU. 44

45 Doing business in the Middle East New VAT system in Gulf Cooperation Council ( GCC ). Effective from 1 January Broad scope, with limited exemptions and zero rated supplies. Impact of VAT on transactions, prices and margins. Impact on local businesses and doing business in or with the GCC.

46 VAT simplification OTS publishes view on VAT: Too complex - multiple rates of VAT and exemptions. Implications of a high VAT registration threshold. Simplifying partial exemption, the option to tax and the capital goods scheme. Obtaining formal rulings is too difficult. Administration, penalty and appeals processes too complicated.

47 Holding companies, transaction costs and VAT recovery Updated HMRC guidance. What does the holding company do? Active or passive activity impact on VAT recovery. Change in policy for vendor due diligence VAT costs. Is the target the recipient? VAT recovery opportunity?

48 Making Tax Digital Changes to UK VAT reporting from April Businesses with turnover above the VAT threshold. A modern, streamlined system for tax record keeping and providing information to HMRC. Keep records of income and expenditure digitally. How good is your data?

49 Revenue Sharing Arrangement IoM / UK VAT revenue split. New agreement = more certainty. Final expenditure by end consumer. Sticking VAT. Reviewed every 5 years - next review in 2018 / 19. Business and household surveys. Collect extensive, accurate and meaningful data.

50 Questions??

51 Thank you from your team Kevin Cowley Tax Partner Andrew Cardwell Tax Director Phil Morris VAT Director Please contact us on: +44 (0) 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 PricewaterhouseCoopers LLC. All rights reserved. ' ' refers to PricewaterhouseCoopers LLC (a limited liability company in the Isle of Man), and may sometimes refer to the network. Each member firm is a separate legal entity.