Tax Bites - April 2023

Welcome to the latest edition of RPC's Tax Bites - providing monthly bite-sized updates from the tax world.

News

UK departs from CJEU ruling and confirms it will proceed with beneficial ownership registers

In Sovin SA v Luxembourg Business Registers (ECLI:EU:C:2022:912), the Court of Justice of the EU (CJEU) ruled that the EU beneficial ownership register regime was unlawful because it infringed fundamental rights to respect for private life and the right to the protection of personal data, enshrined in Articles 7 and 8 of the Charter of Fundamental Rights. The CJEU was of the view that access to ultimate beneficial ownership information went beyond what was necessary to prevent or detect money laundering and the financing of terrorism.

In a new policy paper, the UK government has confirmed its view that the new register of overseas entities, established by the Economic Crime (Transparency and Enforcement) Act 2022, is compliant with the privacy provisions in Article 8 of the European Convention on Human Rights, to which the UK remains a signatory.

HMRC updates its guidance on non-resident trusts

HMRC has updated its guidance to provide information on how to obtain a paper form to report Capital Gains Tax in respect of UK property or land.

The updated guidance states that where trustees of non-resident trusts become liable to pay non-resident Capital Gains Tax, they must be registered with HMRC before creating a Capital Gains Tax on UK property account. The disposal must be reported using a Capital Gains Tax on UK property paper form, even if no tax is due to be paid.

HMRC publishes new guidance on off-payroll working

HMRC has published three new guidance notes on off-payroll working for intermediaries, contractors and clients. The off-payroll working rules are intended to ensure that a worker or contractor pays broadly the same Income Tax and National Insurance as an employee would.

The first note applies to intermediaries or contractors providing services to the public sector or medium and large clients in the private sector.

The second note applies to intermediaries or contractors providing services to small clients in the private sector.

The third note provides guidance for clients who receive services from a worker through their intermediary.

HMRC's guidance is welcome, given the difficulty which private sector organisations have had in implementing the off-payroll working reforms since April 2021.

OECD publishes its fifth peer review report on the prevention of tax treaty shopping

The OECD has published its fifth peer review report assessing the actions taken by jurisdictions to prevent tax treaty shopping and other forms of treaty abuse under Action 6 of the OECD/G20 BEPS Project.

The report confirms that members of the OECD/G20 Inclusive Framework on BEPS, are respecting their commitment to implement the minimum standard on treaty shopping. It further confirms the importance of the BEPS Multilateral Instrument as the tool used by the vast majority of jurisdictions that have started to implement the BEPS Action 6 minimum standard.

Case reports

Tribunal allows appeal and confirms interim dividend was not "due and payable"

In Peter Gould v HMRC [2022] UKFTT 431 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal and found that an interim dividend paid to two shareholders on different dates was taxable on the dates of payment, not the earlier date of declaration, resulting in the dividend being taxed in different tax years for each shareholder.

As was noted in our previous commentary on Jays v HMRC [2022] UKFTT 420 (TC), the point at which dividends are taxed will depend, in large part, on the underlying factual matrix and applicable corporate law. These cases provide a reminder of the extent to which the tax position can very much depend on other areas of the law.

These decisions also highlight the need to ensure that: (1) sufficiently detailed contemporaneous documentation in relation to the declaring of dividends is created and maintained; and (2) the underlying constitutional documentation of the company concerned is clear in order to minimise the risk of challenge on issues pertaining to timing.

Our comment on the decision can be read here.

Expenditure incurred on the construction of a nuclear deconversion facility did not qualify for capital allowances

In Urenco Chemplants Ltd and another v HMRC [2022] EWCA Civ 1587, the Court of Appeal (CoA) overturned the Upper Tribunal's (UT) decision to set aside the FTT decision that expenditure incurred on the construction of a nuclear deconversion facility did not qualify for capital allowances.

The CoA concluded that the UT was wrong in law for the following reasons:

1. With regard to the FTT's conclusion that most of the disputed assets did not, in principle, constitute "plant" for the purposes of section 11, Capital Allowances Act 2001, the FTT had not erred in law and the UT was mistaken to find otherwise.
2. The UT had erred in law in concluding that the part of the disputed expenditure attributable to the walls and first-floor slab of the vaporisation facility was on the "provision of" plant or machinery.
3. The UT had erred in law in setting aside the FTT’s decision that the disputed expenditure was "on the provision of a building". The FTT had made no material errors of law and had come to conclusions that it was fully entitled to reach. The UT had over-complicated this part of the case. The errors of law it identified were no more than the FTT’s evaluative conclusions of fact and degree.

This case provides a useful discussion on the difference between premises and plant, notwithstanding that the availability of plant and machinery capital allowances is very much dependant on the particular facts in any given case. It also provides helpful confirmation that expenditure on "the provision of" any item in List C is to be treated as expenditure "on" that item, in order to rectify a drafting error within the legislation.

Our comment on the decision can be read here.

Tribunal dismisses HMRC's appeal and confirms notification under DOTAS is only required for the first occasion a scheme is implemented

In HMRC v Root2 Tax Ltd [2022] UKUT 353 (TC), the UT held that the Disclosure of Tax Avoidance Schemes (DOTAS) regime requires a promoter to notify HMRC only on the first occasion on which a scheme is implemented and not on each subsequent occasion.

The UT's decision is particularly notable in that it is not simply a narrow black-letter interpretation of a statute imposing a penalty, but an exercise in purposive construction that results in a decision which is not favourable to HMRC in the context of a tax avoidance arrangement. Also notable, is that the UT came to its conclusions without the benefit of legal argument from Root2, which made no appearance.

It is understood that HMRC has not sought to appeal this decision.

Our comment on the decision can be read here.

And finally...

Crypto and insider trading: what is relevant? Adam Craggs and Alice Kemp consider whether the crypto market provides new opportunities for insider dealing in an article first published in Law360.