Tax Bites - September 2023

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

News

Pillar Two - OECD publishes new guidance on  global anti-base erosion model rules

The OECD has published further guidance on the global anti-base erosion model rules (GloBE Rules) which will establish a global minimum corporation tax rate. The guidance expands on the design of Qualified Domestic Minimum Top-up Taxes (QDMTT) as well as providing additional rules for currency conversion and applying the GloBE Rules to qualifying refundable tax credits.

The guidance addresses an important issue which had been criticised in the initial guidance. The QDMTT is calculated in a slightly different way to the top-up tax provided for in the GloBE Rules. For example, under the QDMTT,  it is possible to apply a local accounting standard rather than the accounting standard applicable to the ultimate parent company. This means that there are particular fact patterns where the QDMTT produces a lower amount than would have been due under the GloBE Rules. Whilst there are mechanisms in place to bring the amounts in line, the issue remains that two calculations are required in respect of the same jurisdiction. As a remedy, the new guidance introduces the concept of a QDMTT 'Safe Harbour' which provides that a Multinational Enterprise Group can, if it meets certain conditions (such as in relation to accounting standards), only use the QDMTT calculation, with the top-up tax payable under the GloBE Rules deemed to be zero.

New regulations introduced which require digital platforms to conduct due diligence

The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023 (SI 2023/817) have been enacted and come into force on 1 January 2024. The Regulations require due diligence and reporting by operators of digital platforms that facilitate the sale of goods and services. In particular, digital platforms will need to establish and maintain procedures that are designed to collect information about sellers, verify that information and provide a report to HMRC. These regulations implement in the UK the OECD's model tax reporting rules for digital platforms.

HMRC has updated its International Manual to include guidance on obligations for MNEs to preserve master and local files

HMRC has updated its International Manual to include guidance on the obligations, introduced by the Transfer Pricing Records Regulations 2023 (SI 2023/818), for multinational enterprises with a turnover of at least EUR750 million that operate in the UK, to keep and preserve master and local files as part of their transfer pricing records.

HMRC has updated its guidance on plastic packaging tax

HMRC has updated its guidance on checking which packaging is subject to plastic packaging tax. The guidance amends the description of 'recycled plastic' to clarify that recycled plastic  comes from plastic that has been reprocessed from pre-consumer plastic or post-consumer plastic by using a chemical or mechanical manufacturing process. To be classified as recycled plastic, the plastic must have been reprocessed so that it can be used as a raw material in manufacturing another plastic packaging component. 

Case reports

When determining whether there are 'special circumstances' account can be taken of early payments and voluntary disclosure by the taxpayer

In Marano v HMRC [2023] UKUT 113 (TCC), the Upper Tribunal (UT) held that when determining whether there are 'special circumstances' justifying the reduction of a penalty, account can be taken of early payments and disclosure made by the taxpayer.

In allowing the taxpayer's appeal, the UT considered three issues: (i) early notification of the gain by the taxpayer; (ii) voluntary payment on account; and (iii) whether the penalty was disproportionate. The UT confirmed that such factors could constitute special circumstances for the purpose of paragraph 16, Schedule 55, Finance Act 2009, justifying a reduction in the penalties which had been issued by HMRC.

The UT's broad approach in construing the term 'special circumstances' (according to its natural meaning) confirms the wide scope of HMRC's ability to reduce penalties under Schedule 55 and will be welcomed by taxpayers.

Our comment on the decision can be read here.

Tribunal allows taxpayer's appeal in respect of SDLT and mixed-use premises

In Suterwalla and Another v HMRC [2023] UKFTT 450 (TC), the First-tier Tribunal (FTT) held that a property comprising a dwelling house, and separate paddock subject to a grazing lease, was mixed use for Stamp Duty Land Tax purposes.

Although the appellants were ultimately successful, the law in this area is in something of an uncertain state given the conflicting decision in Brandbros and the approach of the UT in Ladson Preston. HMRC may therefore decide to seek permission to appeal the decision to the UT in order to obtain greater clarity on the correct legal position in this important area of the law.

Our comment on the decision can be read here.

Tribunal confirms that HMRC failed to use the correct test in HICBC case

In Nicky Howard-Ravenspine v HMRC [2023] UKFTT 00471 (TC), the FTT allowed a taxpayer's appeal against an assessment for the High Income Child Benefit Charge, because a severance payment from the taxpayer's employer should have been treated as largely exempt from income tax under the disability exemption.

This decision provides helpful clarification as to the correct test to be applied when determining whether the disability exemption, contained in section 406, ITEPA, applies. It also provides another instance where the FTT has considered the wording of the relevant legislation and rejected HMRC's incorrect interpretation of the law, as set out in its guidance.

Our comment on the decision can be read here. 

And finally...
On 24 August 2023, Taxation Magazine published a news item entitled "Payments to Whistleblowers increase in the past year". The news item was based on research conducted by RPC and features commentary from Adam Craggs. It looks at HMRC's approach to rewarding those who come forward with evidence of serious tax fraud and compares this with the US system which provides for even greater rewards for whistleblowers.

The article is available to view here (Lexis Nexis subscription required).