Tax Bites – August 2024

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

News

HMRC publishes new Guidance on preparing for the Multinational Top-up Tax and the Domestic Top-up Tax

HMRC has published a new Guidance note: "How to prepare for the Multinational Top-up Tax and the Domestic Top-up Tax". The Guidance note aims to help businesses prepare for two new taxes that apply to accounting periods starting on or after 31 December 2023, the Multinational Top-up Tax and the Domestic Top-up Tax. Both taxes are both being introduced under Pillar Two of the OECD Inclusive Framework, which aims to set a minimum tax rate on the profits of large multinational corporations in every jurisdiction they operate in.

The Guidance note provides affected businesses with an overview of the new taxes and some practical tips on compliance.

OECD publishes Pillar One Amount B Jurisdiction Report  

The OECD has published a report on the application of the arm’s length principle to in-country baseline marketing and distribution activities. The key objective of the report is to help enhance tax certainty and relieve compliance burdens in so-called 'low-capacity jurisdictions' where tax authority resources may be lacking. 

The report lists these jurisdictions and provides guidance on how simplification can be applied. There are two different lists depending on the exact transfer pricing mechanism involved. The intention is for these lists to remain valid for five years, following which they will be reviewed.

European Commission consultation on greenhouse gases 

Under Article 12(3b) of the EU Emissions Trading System Directive, when greenhouse gases (GHG) have been permanently chemically bound in a product then no carbon allowances need to be surrendered.

On 20 June 2024, the EU launched a consultation (which is now closed), on a proposed Regulation to specify the conditions that must be met in order for GHGs to be considered permanently chemically bound. 93 responses were received from various industry and academic bodies. The final wording of the Regulation, taking into account the results of the consultation, is expected in the third quarter of 2024.

OECD publishes details of a transitional qualification for domestic rules implementing global minimum corporate tax

The OECD has published details of a transitional qualification mechanism: Qualified Status under the Global Minimum Tax: Questions and Answers, for jurisdictions to determine whether their domestic legislation implementing the global minimum tax has qualified status for the purposes of applying, in the agreed order, the various rules implementing that tax.

The document consists of 11 questions which summarise how jurisdictions can self-certify the compliance of their implementing domestic legislation with the OECD's Pillar Two global minimum tax.

This self-certification is for the transitional qualified status. The OECD intends for this to be in place for up to two years, following which a full legislative review will be completed and the transitional qualified status will end.

Case reports

Tribunal confirms no tax due on disposal of property held on trust for taxpayer's brother

In Raveendran v HMRC [2024] UKFTT 273 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against a discovery assessment issued by HMRC in relation to the disposal of a property, as the property was held on trust by the taxpayer for his brother.

This decision demonstrates that even where contemporaneous documentary evidence is limited, credible witness evidence can establish a taxpayer's case. Of course, it is preferable for taxpayers to properly document any arrangement under which they are the legal owner of property but not the beneficial owner of that property. Had a trust deed been executed showing that the taxpayer's brother was the beneficial owner of the property, it is likely HMRC would not have issued the assessment and there would have been no dispute for the FTT to determine.

This decision also provides a helpful summary of the relevant law on resulting and constructive trusts.

You can read our commentary on the decision here.

Tribunal confirms loans from remuneration trust were disguised remuneration

In HMRC v Marlborough DP Ltd [2024] UKUT 98 (TCC), the Upper Tribunal (UT) allowed HMRC's appeal (in part), finding that payments made under a tax avoidance scheme were caught by Part 7A, Income Tax (Earnings and Pensions Act) 2003 (ITEPA).

While the ineffectiveness of many disguised remuneration schemes is now apparent, a large number of taxpayers are grappling with how the payments received by them under such schemes should be treated for tax purposes. The UT's decision provides some much needed clarity on how the provisions in Part 7A, ITEPA, should be construed and the "connection" required to trigger the anti-avoidance provisions in section 554A(1)(c). The UT's decision also provides helpful 'best practice' guidance on how grounds of appeal should be formulated, particularly where Edwards v Bairstow grounds of appeal are being relied upon.

You can read our commentary on the decision here.

Tribunal refuses HMRC's application for specific disclosure from taxpayer

In Coopervision Lens Care Ltd v HMRC [2024] UKFTT 00351 (TC), the FTT refused HMRC's application for specific disclosure commenting that the order sought by HMRC was unclear, disproportionate and inappropriate. This was particularly so where it was not clear whether or not all the documents HMRC requested existed, and searching for and locating the documents that did exist would be a difficult and time-consuming exercise.

This decision contains a helpful discussion of the factors the FTT is likely to consider when determining an application for specific disclosure. Any such application should be framed in a way that is sufficiently clear, proportionate, and reasonable, in all the circumstances, otherwise it is likely to fail.

This case also highlights that, as a matter of good practice, any assumptions that underpin the specific disclosure being sought must be properly supported with sufficient explanation.  HMRC will not be permitted to simply embark upon a fishing expedition.

You can read our commentary on the decision here.

And finally...

In our latest edition of Taxing Matters, RPC's long-running podcast series which covers a diverse range of issues in the tax world, Alexis Armitage is joined by Simon Howley and Amanda Perrotton from Bell Howley Perrotton LLP to discuss HMRC's Spotlight 63. This focuses on property business arrangements involving hybrid partnerships, why HMRC consider such arrangements to be fiscally ineffective, and the consequences for affected taxpayers.

This and all other episodes of Taxing Matters, can be listened to here.