Category: Corporate Tax

Two company accountants checking their business' taxes
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How Your Business Structure Affects Your Taxes

Two company accountants checking their business' taxes

When forming a business, you have to pay attention to many different details to succeed. However, while you might be focused on elements like operational procedures, supply chains, and employment practices, you also have to worry about your taxes. Depending on the type of business you operate, you might have to pay different taxes than what you’re used to. So, it helps to understand the various implications of each business entity so that you know what to expect.

To help you avoid the stress of tax season, we’ve compiled a list of entity types and what they can mean for you. Here is everything you need to know about how your business structure affects your taxes.


Business Structure Types

You can create four primary types of businesses – sole proprietorship, LLC, partnership, c-corporation, and s-corporation. You can also create a nonprofit, but since those organizations don’t pay taxes, we won’t talk about them here. Usually, what matters most is whether your business is treated as a separate legal entity or if it’s tied to you directly. If you’re running a business with someone else, you also have to consider your stake when paying taxes. Here’s a breakdown of each type.


Sole Proprietorship

A sole proprietorship means that you’re the only owner and operator of the business. This is the default setting for companies if you’re earning business income without registering with the IRS or your state. However, the best way to run a sole proprietorship is to make it official with business documentation.

As far as taxes are concerned, everything you earn from the company gets reported on your personal tax form. So, you’re taxed at your regular marginal tax rate, no matter what type of income you’re getting. For example, let’s say you have a day job with a $40,000 salary, and you make an extra $20,000 from your business. In this case, you’d report your total gross income as $60,000.

The downside of running a sole proprietorship is that you’re liable for any business debts. So, if your company defaults on a loan or a credit card, the creditors can come after you directly. Another disadvantage of this entity type is that you can’t hire employees or add a business partner.



LLC stands for limited liability company, and it’s often the best option for businesses both big and small. Starting an LLC is easy, and you can register your business online. You can start an LLC as an individual or with multiple partners. Either way, you must create and file articles of organization with your state. This document outlines how your business will run. It shows who’s in charge of what and the overall power structure.

The primary benefit of an LLC is that you’re protected from business debts and liabilities. So, if the company goes bankrupt, you won’t be affected personally. When it comes to taxes, what matters is whether you’re by yourself or with partners. Each type of direction (either a single-member LLC or a multi-member LLC) comes with some benefits, that depends on your business model. It’s advisable to consult a tax advisor when choosing how the IRS will treat you.

As an individual LLC owner, the IRS treats the entity as a sole proprietorship. While you can still hire employees and receive liability protection, the IRS treats business income the same as your regular earnings. All you have to do is file Schedule K-1 to combine them. If you have one or more partners, the IRS treats your LLC as a partnership (more on that next). So, what matters is each partner’s stake and income from the business.

To make it easier to understand, let’s pretend you own the business with one other person. You both agree to split earnings 50/50. So, let’s say you made $10,000 for the year, with $5,000 to you and $5,000 to your partner. In this case, you only have to report your half, even though the business made double that. Since you’re adding your company earnings to your personal taxes, you pay your standard marginal tax rate.

Another aspect of filing an LLC is that you can have it work as a corporation. If it’s a c-corp, you have to pay taxes on your income twice, but we’ll cover that later when discussing this entity type.



Partnerships are like a sole proprietorship but with two or more people involved. As with a sole proprietorship, you may enter a partnership without formally registering your business with your state or the IRS. In this case, all partners have an equal share in the profits. So, if you’re in business with three other people, you’re all entitled to 25 percent of the company’s earnings.

Instead, it’s much better to create a partnership agreement that outlines each partner’s duties, responsibilities, and stake. For example, one partner may put up more investment capital, so they receive a larger share of the income. You can also stipulate the rules for exiting the partnership. In some cases, for one partner to leave, the other partners have to buy their stake in the company. Once someone leaves the business, you must create a new partnership agreement.

Another way that partnerships are similar to sole proprietorships is that they offer no liability protection to the owners. However, if you want protection, you can form a limited liability partnership or LLP. You must make this distinction when starting the business, which is another reason to create a partnership agreement.



In the United States, corporations are treated as separate, legal tax entities by the IRS. So, a corporation must pay income taxes like any individual. In this case, forming a c-corporation means you’ll get taxed twice on your earnings. First, the company gets taxed, then you get taxed on your personal gains.

For example, let’s say the business earned $50,000. The corporate tax rate is 21 percent, so the company would pay $10,500 in taxes. Then, you would pay taxes on whatever earnings you took from the remaining balance. So, if you’re starting a business by yourself, it doesn’t make much sense to form a c-corporation. You also have to have a much more rigid company structure, which is challenging when you’re the only owner.



Unless you’re forming a large company, it makes more sense to establish an s-corporation instead of a c-corp. This is because s-corporations offer pass-through income, meaning the business doesn’t get taxed before you do. However, there are strict rules about how these entities can operate and which earnings can pass through. We recommend talking with an attorney before incorporating so that you can be sure you’re compliant.


Although taxes can seem daunting, they’re relatively easy to manage if you know what to expect. While we’ve discussed the tax implications of each business entity, there are pros and cons to each type. So, take the time to figure out which one is right for your needs.

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Amazon Is The Global Frontrunner In Research And Development


Amazon Is The Global Frontrunner In Research And Development

The latest research by R&D tax credit experts, RIFT Research and Development Ltd, has looked at which names are driving the R&D sector when it comes to spend on sector innovation around the world.  

RIFT looked at the total spend on research and development as well as what percentage of revenue this accounted for.

Top of the list is world-beaters, Amazon, although they remain largely involved in technology and retail as their core business. The US-based business behemoths not only have the retail game on lockdown, but they top the R&D table as well, with the latest figures showing a huge R&D spend of 17.38 billion pounds in a single year. The development of delivery drones must be expensive although it’s money well spent, with Amazon’s evolution ensuring that their giant R&D spend equates to just 13% of revenue!

Tech and software giants, Alphabet, the world’s fifth-largest technology company by revenue and one of the world’s most valuable companies, take the second spot in the R&D spend league table.  The parent company of Google, they spent £12.47bn in a year on research and development, although again, this equated to just 15% of revenue.

Volkswagen takes bronze as one of just three non-tech focused companies in the top 10 R&D spend league table. The German car manufacturer is also the first outside of the US with an R&D spend totaling £12.12bn over the last year.

Samsung (£11.77bn), Microsoft (£11.33bn), Huawei (£10.45bn), Intel (£10.07bn) and Apple (£8.90bn) rank fourth to eight as the tech takeover continues, while Swiss medical multinational Roche Holding, who operates worldwide under the two divisions of pharmaceuticals and diagnostics places ninth with £8.30bn spent on R&D.  

In at the tenth spot is Johnson and Johnson, again largely involved in pharmaceuticals and consumer packaged goods, with an R&D spend of £8.11bn.

Other companies to feature in the top 20 range from Daimler, Ford, Facebook, BMW and Bosch.

Director of RIFT Research and Development Limited, Sarah Collins commented:

“It goes without saying that some of the biggest names in the business will be spending considerable amounts of money on bettering their proposition through innovation, research, and development and those with the huge budgets to do so are also some with the lowest percentage of R&D spend as a percentage of revenue. 

While R&D certainly lends itself to a wider array of work in certain sectors, such as automotive, pharmaceuticals, engineering and software development, it certainly isn’t restricted to these sectors alone and it’s great to see so many vast and varied businesses taking advantage of R&D tax relief in the UK in particular. If you’re an SME pioneering change in your individual sector, make sure you are making the most of Government rewards for doing so and no matter how insignificant you think a step forward might be, the chances are it qualifies as research and development.”


R&D spend $ (US billions)

R&D spend £ (GBP billions)

R&D Intensity (R&D to Revenue %)

Industry group / sector

Country / nationality




Retail / technology / services

United States





Software and services

United States





Automobiles and components






Technology hardware

South Korea





Software and services

United States












United States





Technology hardware

United States

Roche Holding




Pharmaceuticals / biotechnology / Life


Johnson & Johnson




Pharmaceuticals / biotechnology

United States





Automobiles and components


Merck & Co




Pharmaceuticals / biotechnology

United States





Automobiles and components






Pharmaceuticals / biotechnology


Ford Motor Company




Automobiles and components

United States





Software and services

United States





Pharmaceuticals / biotechnology

United States





Automobiles and components


General Motors




Automobiles and components

United States





Engineering / technology









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UK engineering companies are potentially missing out on £10 billion of R&D funding each year


UK engineering companies are potentially missing out on £10 billion of R&D funding each year


Engineering companies in the UK are potentially missing out on over £10 billion of R&D funding each year, new research has revealed.

The study, commissioned by innovation specialists MPA for Advanced Engineering 2019, found that one in five (21%) innovation active engineering firms are not taking advantage of the government’s R&D Tax Credit scheme, which allows companies to claim back up to 33p for every £1 spent on R&D activity.(1)

On average, engineering companies invest £386,000 a year on R&D activity, meaning they are potentially able to claim £100,360 in funding.(2) With over 100,000 UK engineering firms not claiming, despite describing their company as innovation active, a staggering £10.2 billion is going unclaimed each year.(3)

Reasons for not claiming the funding vary, but the most common answer given by engineers is that they don’t believe their companies are eligible (10%).

However, the research revealed that many engineering companies probably qualify without them realising. Some examples of indicative qualifying activities are, if your company develops new processes to improve efficiency, quality or performance; overcome unplanned technical difficulties or create bespoke solutions for clients.

Two-thirds (67%) of workers think that their firms are ‘innovation active’, which is the most accurate indicator that a company is eligible for the R&D Tax Credit scheme. Despite this, only a third (37%) say that their companies claim the available funding.

Another barrier blocking engineers from claiming is a lack of awareness about the initiative. Nearly a quarter (24%) of the surveyed engineers who aren’t claiming admitted that they didn’t even know that the scheme exists. Even among those who think they are innovation active, one in fourteen (7%) said that they were completely unaware of R&D tax credits.

While many are yet to take advantage of the scheme, engineering companies in the UK are planning on investing heavily in research and development. Over the next year, over one in five (22%) businesses in the industry are planning on spending over £1 million on innovative projects.

Nigel Urquhart, Senior Technical Analyst at MPA, said: “Engineering companies in the UK are respected all over the world for their quality and innovation, but a worryingly low number of them are claiming the R&D funding they are entitled to.

“Our research has highlighted that more work needs to be done to raise awareness of the R&D Tax Credit scheme, as these innovative companies could save themselves hundreds of thousands of pounds. This money could then be reinvested to fund further innovation, which would ensure UK engineering stays at the forefront of the industry.”

To see whether your company is eligible for the R&D Tax Credit scheme, visit:

[1] Survey of 250 UK engineers conducted by The Engineer on behalf of MPA in September 2019

[2] R&D tax credits calculator:

[3] Office for National Statistics: ‘Engineering Industry in the UK’ (December 2018) – there are 721,940 active engineering enterprises in the UK. 485,143 (67%) of these are innovation active. 101,880 (21%) of these innovation active companies are not claiming R&D funding: //

R&D tax relief
Corporate TaxRegulationTax

Manufacturers top the R&D tax relief table – is your sector lagging behind?

R&D tax relief

Manufacturers top the R&D tax relief table - is your sector lagging behind?

Manufacturing firms claimed £1.25bn using R&D tax relief in the 2017-18 financial year, more than any other industry sector, a study from R&D tax credit experts, RIFT Research and Development reveals.

Manufacturing firms also made the highest number of claims over the period, at 11,925.

The R&D tax relief scheme is effectively Corporation Tax relief that can reduce a company’s tax bill and R&D specialists, RIFT, have dissected the latest industry data. This shows which sectors are submitting the most claims, the sectors being awarded the most in successful claims, and those that are bringing home the largest sums financially with just a single claim.

Other major users of R&D tax relief

Professional, Scientific & Technical firms came in second by amount, claiming £1.02bn annually. Behind that sector was Information & Communication (£820m), Wholesale & Retail Trade, Repairs (£235m) and Financial & Insurance firms (£215m). The smallest amounts claimed were from firms in Accommodation & Food (£5m), Real Estate (£10m), and Electricity, Gas, Steam and Air Conditioning (£10m).

Information & Communications rank high on number of claims

Information & Communication firms made 11,635 claims over the period, the second highest behind Manufacturing. Professional, Scientific & Technical firms were also responsible for 9,545 claims. There were only 125 claims for the Electricity, Gas, Steam and Air Conditioning sector, while there were just 215 claims by Real Estate firms. 

Mining & Quarrying dominate high value claims

The Mining & Quarrying sector has by far the largest average claim amount, at £1.16bn. However, despite the extremely high value, there were only 95 claims over the course of the year in that sector.

Other high value sectors per average claim were Financial & Insurance firms (£232,400), while third on the list was Arts, Entertainment & Recreation (£157,900). Once again Accommodation & Food was the smallest sector regarding claims (£21,700), while another comparatively low value sector was Wholesale & Retail Trade, Repairs (£44,000).

Head of RIFT Research and Development Limited, Sarah Collins commented:

“It’s been interesting to see how the dynamics of the research and development landscape have changed, as more and more companies from a wide variety of sectors have started to utilise the scheme.

“Of course, a sector like manufacturing is likely to provide more regular opportunities to further develop the practices being used through R&D and so it’s no surprise that it leads the way for both the total amount claimed and the number of claims. However, when it comes to the value of the claim, it can very much be a case of quality over quantity, with some of the less prolific sectors for overall claims contributing with some of the highest values of R&D tax relief.”

Sector League Table - £ amount claimed
Sector League Table - Number of claims
Ranking League Table - average £ per claim
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Leyton UK welcomes increase in R&D funding, but urges ‘further and faster action’


Leyton UK welcomes increase in R&D funding, but urges ‘further and faster action’ by Government


Leyton UK, the country’s leading innovation funding consultancy, has welcomed the increase in R&D tax credit claims, announced last week by HMRC, but urged the Government to go further faster and to increase awareness and uptake of the scheme to ensure the UK keeps pace with other economies. R&D tax credits are a tax relief designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by either reducing a company’s liability to corporation tax or by making a payment to the company.

The announcement by HMRC has revealed that there have been 48,635 R&D tax credit claims for 2017-18, of which 42,075 are in the SME R&D scheme, corresponding to £31.3bn of R&D expenditure. This is expected to rise and HMRC has now revealed that claims for the last complete year, 2016/17 indicate an overall increase of 20% from 2015-16. The increase was primarily driven by a rise in the number of SME claims, which totalled 45,045 in 2016-17, an increase of 22% from 2015-16.

Leyton highlights that the take up of claims from sector to sector and across the country varies. The Government has an ambitious target of 2.4% investment in R&D overall by 2027. The most recent ONS figures however revealed the UK’s investment to be just 1.69% of national GDP, well below the European average of 2.07%. This suggests far bigger increases in R&D investment will be required to come close to meeting this ambition. The need to focus on investment in innovation is clear and Prime Minister Boris Johnson promised to ‘double down’ on R&D investment in a recent speech at the Manchester Science and Industry Museum.

According to Leyton UK MD William Garvey: “The R&D tax incentive has become well established in the UK and we are seeing an encouraging take up as businesses realise the full scope of what they can claim. However, if the Government wants to realise its goal to ‘double down on R&D’ there needs to be better education and communication for SMEs as we have found awareness of the scheme varies from sector to sector and across the country. We would also suggest further financial incentive. The UK is blessed with a combination of creativity and technical brilliance that are the foundations for success in the future. To support innovation post-Brexit, Government will need to continue to invest.”

Leyton UK has witnessed impressive growth on the back of increasing awareness of the scheme, recently revealingannual revenue growth of 50% for the financial year 2018/2019, its most successful year in its 10-year trading history.

ArticlesCorporate Tax

Why Brand Image Is More Important Than Ever

If you want to be a leading business in your market, you must have a reputable brand. Brand awareness is one of the most significant factors that contribute to the successful running of a business. You want to make a great first impression that will last if you have aims to increase your consumer base and become a thought-leader in your sector.

Within this piece, you’ll learn more about what your customers think and what you should be doing in the future. 

Implementing change

For many businesses, uniforms are a main element. You need to ensure that your employees are identifiable to customers and this can only be achieved by designing a uniform that stands out; while catering to each type of individual that works for you (considering religions etc).

Corporate wear represent your business – so you must design them in the correct way and prioritise employee comfort to ensure you receive the best delivery from them.

Above all that, skill development is core to any future success. This should cover ways that they interact with consumers of all kind (race, religion, disability) and offer the most efficient service possible to show that you’re a reputable brand. On top of this training, you should also make your staff aware of any new products or services that you begin to offer so that they can give customers all of the information that they require.

You must consider other areas internally too. Research has suggested that customers will spend up to 13 minutes in a store — so it’s important that you deliver an exceptional service. Queues are notoriously long here in the UK and can be the biggest contributing factor to a customer’s walk-out. To combat this, why not look at queue management software and point of sales service?

What your customers think

More people believe that the in-store experience is more valuable than the product. Although you should also be prioritising the quality of your products (to reduce returns and negative reviews), you should be constantly reviewing your current customer service methods and continually think of ways that you can improve the overall service.

Although you should always be confident with your service delivery, know that there’s always room to improve internal strategies. According to one study, 80% of businesses already believe that they deliver a superior service to their consumers – but only 8% of shoppers actually agree with this statement.

Loyalty is key for retail businesses, and if you offer a quality service from the start, customers will appreciate that.  Not only that, but if you’re looking to increase your consumer acquisition rates – this is a good avenue to go down. 84% of people make a purchase because of a referral; so if your first impression is worthwhile, it could lead to additional business.

Are you prepared to make the changes necessary to ensure success?





business abroard
Corporate TaxTax

What are the main tax concerns for businesses looking to set up a branch abroad?

The hundreds of different nations across the globe – all with different laws and different tax rules – offer businesses an exciting platform to expand their trade. Financial advisers can look how to best advise their business clients on how to minimise their tax bill, using their knowledge and expertise to identify the best opportunities across the world. Expanding abroad is very expensive as it is but you can save money through an understanding of the tax system.

Challenging economic times mean that companies are looking to save money where they can and reduce their tax payments to stay competitive – especially if they feel that they are paying more tax than is fair.

Tax jurisdictions deliberately attract business by cutting their tax rates

Tax jurisdictions which are struggling economically deliberately cut their corporate tax rate with the pressure to compete and attract more business. Britain is known to be exceptionally ‘high tax’, so it makes financial sense for businesses to look for alternatives-even if they do sometimes go too far!

While companies may look to pay less VAT, they contribute vast amounts to the UK economy in other ways – but they need to stay competitive in order to do so. A huge amount of tax comes from UK businesses, but only a small amount of that is corporation tax. Therefore in its current form, corporate tax is perishing, because a product is no longer made in just one country.

Location, location, location

It is universally acknowledged that companies can minimise their tax bills by setting up branches abroad. For example, Google UK operates in Ireland and Bermuda, taking advantage of the low tax rates and state that they have a responsibility to their shareholders to minimise costs. Google deliberately chose Ireland as its nucleus to coordinate marketing and sales across Europe.

When a business chooses where to locate its distribution and service hubs, headquarters and factories, it makes financial sense to choose a low-tax jurisdiction. Obviously tax is just one of the criteria when a business is looking to set up a branch abroad – they also have to locate near local suppliers and an expert workforce.

It is extremely doubtful that a universal corporate tax law will be implemented across Europe in response to this movement, as this would mean that countries such as Ireland would lose out, no longer able to offer a cheap rate to cut the amount companies must pay on profit thereby no longer attracting business when they desperately need to.

Transfer pricing

Cash-needy governments are looking to crack down on businesses saving tax abroad, but even if a company can’t set up a branch abroad it can still move its taxable profits overseas. For example, the UK part of the business lending money to other branches abroad – this is known as ‘transfer pricing’. Intercompany transactions are of course perfectly legal.

Setting up a branch abroad for the first time

With the knowledge that taxes vary from country to country, the first step is to maximise tax efficiency by finding out what tax you are required to pay in which country.

Planning your move is crucial – your financial advisor will need to look into whether you need to create a permanent establishment abroad and whether it will benefit your business better as a branch or a subsidiary.

Other factors to negotiate or consider include whether you should recruit staff locally, or bring UK staff (UK tax resident or overseas residency) and how that will impact tax you pay. You will need to register for local tax and take into account your foreign currency, banking obligations and repatriation of profits.

These are the main tax concerns which can have significant consequence for your business:

• Payroll tax obligations

Payroll Tax is worked out by your wage total that you pay out per month and is collected in each branch of the business

• The impact of the OECD BEPS programme

The Organisation of Economic Cooperation and Development (OECD) designed a plan known as the BEPS programme, to try to reform the international tax system

• Controlled Foreign Companies legislation

The legislation is designed to prevent low tax jurisdictions benefiting from UK profits

• Withholding taxes

This is a tax deduction in wages, paid directly to the government

• Transfer of Assets Abroad

The Transfer of Assets Abroad (TOAA) prevents UK nationals using foreign transfers to save on tax

• Thin capitalisation

Thin capitalisation is where a business is financially boosted via a high level of debt compared to equity

• Structuring of operations including the foreign branch exemption

UK businesses can apply for profits of their branches abroad to be exempt from UK taxation

• Double tax treaty issues

Bilateral tax treaties alleviate double taxation when it happens – most EU countries have this in place

• Corporate tax residency

HMRC are seeking to maximise tax during this currently unstable economic time

• Operation of the UK R&D and Patent Box tax regimes

Businesses can apply for a lower corporation tax rate for profits made by patented inventions.

There are many key benefits for a business in setting up a branch abroad, including tax savings that can be found in the government incentives of the country you choose to move to.

Differing countries are sure to want to attract your business and a branch abroad offers access to a potentially untapped market, an increase in global brand identity and better business recognition and support in a more encouraging environment.

Seeking expert tax advice will allow you to watch out for the pitfalls and take advantage of the opportunity to expand and grow your business.

UK Passport Holders Should be Liable to pay UK taxes on their Worldwide Income
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UK Passport Holders Should be Liable to pay UK taxes on their Worldwide Income, says CISI

Commenting in the latest edition of The Review, the CISI’s member magazine, CISI CEO Simon Culhane, Chartered FCSI says the recent leak of papers from Panama lawyers Mossack Fonseca, regarding the super-rich sheltering their income, has resulted in adverse public reaction on the issue of fairness and the tax burden.

“But the UK income tax system isn’t fair at the best of times. The top 1% of taxpayers, roughly those who have an income over £150,000, pay almost 30% of the entire income tax burden of £160bn, while the average person pays less than £5,000 a year.

“We could greatly simplify the collection of UK tax, and spread the load more fairly, if we moved away from just operating a residence test when determining whether an individual should pay tax”, says Mr Culhane.

At present it is residency rather than citizenship, which determines whether or not an individual is liable to pay tax on their worldwide earnings.

“We believe that this system should be changed so that anyone who is a UK passport holder is also liable to pay tax on their worldwide income in exactly the same way as US citizens are taxed on their worldwide income, irrespective of where they live. Of course there are double taxation treatments in most countries, so a citizen who is resident outside the US doesn’t pay twice,” says Mr Culhane.

CISI’s CEO says that mandating UK citizenship alongside UK residency as the qualifying factors for the payment of UK taxes means it will no longer matter if someone is in the UK for 16 days, for 90 days or 183 days (all key time periods at present in determining residency).

“It will avoid the nonsense of midnight flights and sub-optimal planning as individuals, usually highly paid and with a high net worth, take steps to ensure they don’t overstay their time in the UK in a given tax year,” he says.

“The citizenship/residency tests would mean those seeking lower tax havens can still do so, and they can run empires and businesses from anywhere in the world – but if they want the benefits and rights of UK citizenship they must accept their responsibilities to pay their fair dues and contribute to the UK Exchequer, “ says Mr Culhane.

ATED - Annual Tax on Enveloped Dwellings
Corporate TaxTax

ATED – Annual Tax on Enveloped Dwellings

James Hamand, Head of Professional Valuations at Douglas & Gordon, has voiced his thoughts on the change.

James has worked in residential valuations for over ten years. Valuing properties worth up to £150m, he advises private individuals and institutional landlords on how to get the best possible results from their holdings and regularly gives expert evidence at tribunal hearings.

He said:

“ATED (Annual Tax on Enveloped Dwellings) was brought in with effect from 1 April 2013 and applies to UK residential properties owned by non-natural persons (i.e. by a company or other investment vehicle). However, from 1 April 2016, it will now also apply to residential properties worth between £500,000 and £1 million.

“As was the case under the old SDLT regime, we are seeing fewer properties transacting at or just above threshold values i.e. a property theoretically worth £505,000 might now sell for £499,999 as owners take the new charges into account.

“This makes taking valuation and legal advice, particularly in the London market, critical if investors are to take a long term view, maximise the value of their portfolios and mitigate future liabilities”.


Sturgeon – Tax Powers must be Used for a Purpose
Corporate TaxTax

Sturgeon – Tax Powers must be Used for a Purpose

The First Minister outlined how the Scottish Government has used existing tax powers to good effect. The Small Business Bonus Scheme has helped support small businesses in tough financial times; Land and Building Transactions Tax has made the property market more progressive, and Landfill Tax is being increased to encourage recycling.

Ms Sturgeon also discussed how the proposed new tax powers can be used to complement the existing powers.

Praising the collaborative approach of the Commission on Local Tax Reform, she confirmed that the Scottish Government will announce detailed plans on local taxation next week – which will propose incentives for councils to boost economic growth by assigning them a share of income tax revenues.

The First Minister said:

“Taxation policy is, at heart, inseparable from questions about the sort of society we want to see – the sort of country we want to live in.

“Our approach to taxation recognises the interdependence of greater equality and higher growth; of encouraging enterprise and promoting fairness.

“David Hume’s great friend, Adam Smith, argued that taxes should be certain, convenient, administratively efficient and proportionate to the ability to pay. Those principles underpin the Scottish Government’s approach.

Using local tax reform as an example, Ms Sturgeon added:

“The changes to council tax that we will propose are part of a longer-term plan. In particular, we will discuss with local authorities how we can assign a share of income tax revenue to their funding.

“That means that if councils succeed in boosting economic growth, and consequently income tax receipts, they will share in some of the benefit. And it also means that local government funding will be more broadly based. Income tax, and a more progressive council tax, will both play an important part.

“It’s an approach which goes a long way towards meeting an important concern of the Commission on Local Tax Reform – that income and property-based taxes together would be a better source of revenue than council tax alone.

“It’s a further example of how considering expert evidence can help us to propose a better tax system.”

Revenue Scotland Receives 100
Corporate TaxTax

Revenue Scotland Receives 100,000th tax Return

Scotland’s Deputy First Minister called the occasion– which covers returns for Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax received since April 1 – a “pivotal milestone”.

The most recent figures published by Revenue Scotland show that, for residential and non-residential property transactions between 1 April and 31 December 2015, more than £315 million of LBTT was collected.

This means that LBTT revenues remain firmly on track and overall devolved tax revenues are in line with the Scottish Government’s forecast for 2015-16.

Over the same period, more than 40,000 Scottish home buyers have paid less tax than they would have under UK Stamp Duty, while 93 per cent of those who purchased a house for £40,000 or more paid less tax or no tax at all on their house purchase.

Deputy First Minister John Swinney said:

“Revenue Scotland is the first agency collecting solely Scottish taxes in more than 300 years and they have now passed a pivotal milestone.

“Our objective has always been to make sure that first-time buyers have the greatest possible chance to enter the housing market.

“LBTT was one of the first Scottish taxes collected in 300 years, and these figures show that more than 40,000 home buyers have benefitted since it was introduced.

“This means that 93 per cent of home buyers have paid less tax than they would have done under UK Stamp Duty Land Tax, or paid no tax at all.

“I also welcome the recent Bank of Scotland Homemover Review which confirms that the introduction of the Scottish Government’s new land and buildings transaction tax (LBTT) has helped to increase the number of house moves by three per cent last year to reach their highest level since 2008.

“Where we have the freedom to shape a taxation system that is fair and proportionate to the ability to pay, we have created one that is progressive and supports those who most need it.”

Committee Support for new Property tax
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Committee Support for new Property tax

The Land and Buildings Transactions Tax (Amendment) (Scotland) Bill introduces a supplement on purchases of additional residential properties in Scotland (such as buy-to-let properties and second homes) over £40,000. As drafted, the Bill would apply across the board to all relevant purchases above the threshold.

In agreeing to the general principles of the Bill however, the committee has emphasised the need to balance the interests of first time buyers with the needs of those who rent their homes and with the interests of house builders and investors, to protect the supply of new homes. The committee has therefore called for the introduction of a relief on bulk purchases of six properties or more.

The committee also noted concerns about the potential impact on the private rental sector through a reduction in the number of homes available for rent and higher rental costs. The report recommends that it is essential that the Scottish Government closely monitors the impact of the supplement on rent levels especially in areas where rents are already high.

The report also highlights support for a number other reliefs including for registered social landlords and local authorities, and for student accommodation.

Kenneth Gibson MSP, Convener of the Finance Committee, said:

“Whilst the committee is supportive of the Bill’s aim to support first time buyers entry into the property market, there are a number of areas that we wish to see addressed as the Bill progresses through Parliament.

“The committee heard concerns, for instance, about the impact on people who rent, whether through choice or necessity. The Royal Institute of Chartered Surveyors has suggested that the supplement could lead to a rise in rents as additional costs are passed on to tenants. We feel that the support given to first time buyers must not be at the expense of those people who rent their homes.”

The committee’s report also highlights concerns that have been raised by a number of stakeholders about “the limited time that has been made available by the Scottish Government for parliamentary scrutiny of this Bill”. The report’s conclusion acknowledges this and says that it is “essential that the impact of this Bill is closely monitored and that a comprehensive review is carried out once sufficient data is available.”

Mr Gibson, continued:

“Many organisations have commented on the truncated timetable that this legislation has been subject to. I agree that it is far from ideal, however this is a problem that I would expect to occur with greater frequency as the Parliament assumes more powers and the Scottish Government responds to decisions made by the UK Chancellor that impact on Scotland. There is a need for Parliament and Government to develop a process that allows for transparent consultation and scrutiny whilst recognising that it may occasionally be necessary for swift decisions to be taken on tax matters.”


UK Taxman Seizes more than £2 Billion from tax Avoidance Scheme Users
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UK Taxman Seizes more than £2 Billion from tax Avoidance Scheme Users

New statistics reveal that HMRC has collected more than £2 billion in disputed tax from tax avoiders, under rules introduced by the government in 2014.

The new Accelerated Payments notices mean that users of tax avoidance schemes pay disputed tax up-front while their tax-affairs are investigated, instead of waiting until they are concluded. Given HMRC wins 80% of cases that go to court, this eliminates the financial advantage that tax avoiders previously enjoyed.

The Financial Secretary to the Treasury, David Gauke, said:

“We will not tolerate tax avoidance and Accelerated Payments has been a real game changer.

“HMRC already wins the vast majority of cases that go to court and now HMRC has taken more than £2 billion from tax-avoiders who would have otherwise benefitted from that cash while they were being investigated.

“It should be absolutely clear to anyone who is tempted by these schemes that tax-avoidance does not pay.”

Jennie Granger, Director General for Enforcement and Compliance, HMRC, added:

“Accelerated Payments continue to turn the tables on individuals looking to avoid paying their fair share of tax. Those who take part in tax avoidance now have to pay up-front and dispute later. It really is time to get out of avoidance – HMRC wins the vast majority of cases that people litigate, with many more settling before litigation.

“HMRC is now issuing over 3,000 Accelerated Payment Notices a month, and has issued over 41,000 notices since Accelerated Payments were introduced. By the end of 2016, HMRC expects to have completed issuing notices, bringing forward over £5 billion in payments for the Exchequer by March 2020.”

EU Engages in Tough Debate on Corporate Tax Practices
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EU Engages in Tough Debate on Corporate Tax Practices

These companies had declined the committee’s first invitation to appear before it, but later changed their minds and accepted its last chance invitation. Of the 13 original invitees, only Fiat Chrysler and Walmart declined the final invitation. The meeting started with a minute of silence for the victims of the Paris terrorist attacks.
Many questions were about transfer pricing practices (money flows within the same company) and how the firms’ representatives felt about the OECD proposals against base erosion and profit shifting (BEPS). MEPs also floated proposals for mandatory country-by-country reporting on profits, taxes and subsidies and for a common consolidated corporate tax base (CCCTB) on which the EU Commission relaunched a consultation in October. Google was asked about its Bermuda subsidiary, and Facebook was asked why it stored its intellectual property rights on the Cayman Islands.

Most companies insisted that their tax practices were legal and pointed to the large numbers of staff they employ in EU member states. Most were unenthusiastic about the idea of country-by-country reporting, especially if these mandatory reports were to be made public, and objected to the administrative burden that they would impose. But they said that a common consolidated corporate tax base (CCCTB) would be welcome if it made the rules more consistent and clear. Several firms also advocated a binding mediation mechanism in the case of tax disputes.

Six-month extension

Prior to the meeting, Parliament’s political group coordinators decided to ask its political leadership, the Conference of Presidents (EP President and political group leaders), to propose prolonging the committee’s mandate by six months. The coordinators feel that they need more time to access and analyse documents and also to monitor legislative initiatives in the corporate taxation field.

Taxing Times to Hold Assets Abroad and for Accidental Evaders
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Taxing Times to Hold Assets Abroad and for Accidental Evaders

 By Kay Aylott

Whilst it has never been acceptable to evade tax, the UK has been allowing people to regularise their affairs with favourable amnesty terms. That toleration is about to change. As has been observed: a ticking time bomb now exists under tax dispensations.

The most generous of these reprieves, the Liechtenstein Disclosure Facility (LDF), ends in December, marking the start of a much tougher regime from Her Majesty’s Revenue & Customs (HMRC).

The LDF has been a valued way for non-compliant individuals to regularise their financial affairs. It is ending several months earlier than originally announced, a sign itself of Government impatience with what is deemed unacceptable avoidance.

It has been a particularly useful device, not least for the Treasury which has recouped more than £1 billion from nearly 6,000 disclosures since it began in 2009.

But the LDF has also been good for individuals looking to get their financial house in order, even generous. Anyone making a disclosure under its terms is only liable for back taxes to 1999, as opposed to the usual 20 years.

The scheme sets a composite rate of 40 per cent for the tax years up to and including 2008/9, with 50 per cent generally applicable thereafter.

The penalty is also relatively low, at 10 per cent of money owed up to an including the tax year 2008/9, with a higher rate for liabilities in subsequent years.

Under the LDF, only a portion of assets need to be held in the Principality of Liechtenstein for those held elsewhere also to be disclosed. There is no risk of prosecution either, unless a crime is evident or a fraud investigation has begun.

Although it will be replaced, no details have been given yet. But nobody is expecting anything as generous.

The Taxman Cometh
Chancellor George Osborne, has made tackling tax avoidance a signature issue throughout his tenure at the Treasury. The political climate also suggests something harsher, with a crack down on offshore tax avoidance a valuable buttress to continuing domestic austerity.

Almost all Osborne Budgets have added something to make ‘aggressive’ avoidance harder, with one HMRC official noting that the first purely Conservative Budget in a generation this summer was no exception, unleashing what he described as a ‘tsunami’ of proposals, including new powers for HMRC.

As if to underline his determination, Mr Osborne, unfettered by coalition politics, also gave the revenue service a further £750 million to spend tackling evasion. The money will be used to triple the number of people who can be investigated, and target offshore trusts.

Against this backdrop, experts believe the penalty rate for what replaces the LDF will be punishing, perhaps as high as 30 per cent; and that the 10 year limit on liability may also disappear. Crucially, there will be no guarantee against prosecution.

The terms of entry are also likely to narrow. For example, it may no longer be possible to use the replacement as a funnel through which to declare a wider portfolio.

If that were not enough incentive for individuals to bring their financial affairs into order, there is more on the horizon.

Further pressure will come from growing co-operation between 94 tax authorities around the developed world. These will share information about people from 2017, making it much harder to find shadows in which to hide assets.

The Accidental Evader
But in fact the process of shining light on hidden wealth begins faster sooner: Data collaboration will begin in earnest with Guernsey, Jersey and the Isle of Man from next year.

The Government has also made clear its intention to make the non-disclosure of overseas assets a criminal offence. There will be no exceptional circumstances allowed.

This raises the risk for some, perhaps beneficiaries of trusts established abroad, that they could be unwitting evaders, unaware that liability always fall on the beneficiary, not the settlor, as far as HMRC is concerned

There are also people who have historic liabilities, but of which they are utterly unaware.

Issues arise when money from offshore trusts filters down through the generations, with understanding of the original trust by those benefiting from it dimmed over time.

It is not just the very rich who face being caught out either. Many offshore trusts were created in the 1970s and 1980s involving relatively modest sums removed abroad to avoid Capital Gains liabilities, perhaps the equivalent to £250,000 today.

Experience also suggests that individuals benefiting from offshore trusts are often unaware of their strict liability to declare, even when they do know about them. Some believe, incorrectly, that a capital distribution, for example, does not incur a tax liability.

They also assume that trustees will have alerted them to any tax issue. But there is no obligation on them to do so, and frequently no expertise on tax matters anyway.

What is often forgotten is that trusts can be highly complex in their structure and require considerable expertise to understand, particularly in relation to tax owed.

No Ifs, No Buts
A further discomforting threat that HMRC has made to encourage people forward with irregularities now is, under the new regime, ‘naming and shaming’ those it investigates and finds in breach.

Furthermore, it intends to be unforgiving about ignorance. Tax advisers will soon be subject to much tougher rules, essentially requiring them to make their clients aware of opportunities to disclose irregularities, and the penalties for failing to do so. The intention is to ensure that nobody can say they were not warned.

When all these steps and undercurrents are taken together it is clear that something quite fundamental is changing if not altogether clearly. Tax avoidance was once understood and applied as the legal counter to tax evasion. That distinction has now blurred.

What began as a moral crusade against ‘aggressive tax avoidance’ after the financial crisis of 2007/8 has become, certainly for those with UK reporting liabilities, an increasingly legal one.

The prospect of greater collaboration between tax authorities worldwide signals that the UK is not alone in its tougher approach. The window of opportunity to deal with difficulties favourably is shutting very fast.

Kay Aylott is Director of Private Client and Trusts at accountancy firm Kreston Reeves

Colombian Corporates: Low Oil Prices Lead to Rising Corporate Taxes
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Colombian Corporates: Low Oil Prices Lead to Rising Corporate Taxes

This pressure could be alleviated if the government gains the ability to expand its tax base. Consumers’ disposable income has been also hit by higher personal income tax rates and inflation pressure caused by the sharp currency depreciation. Increasing corporate exports will not be a short term solution for the woes faced by issuers. Corporates will need time to rebuild export channels following the sharp appreciation of the U.S. dollar against the Colombian peso during 2015.

Fitch revised its previous expectations of GDP growth down to 3.0% in 2015 and 3.5% in 2016. Weakening terms of trade and low oil prices have hurt the economy. Economic growth will continue to depend upon the country’s fourth generation infrastructure projects (4G) and a dynamic construction sector.

The Rating Outlook for Colombian corporates is Stable, despite challenging economic conditions. Most corporates continue to maintain conservative credit profiles despite increasing leverage trends. Refinancing risk remains manageable due to robust liquidity position and access to diverse funding sources.

The full report ‘Colombia Corporates Low Oil Prices Lead to Rising Corporate Taxes’ is available at

New Inflation Estimates Offer First Look at Impact for Taxpayers in 2016
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New Inflation Estimates Offer First Look at Impact for Taxpayers in 2016

The new information includes estimated ranges for each 2016 tax bracket as well as projections for a growing number of inflation-sensitive tax figures, such as the personal exemption and the standard deduction. Projections are based on the relevant inflation data recently released by the U.S. Department of Labor.

Inflation Adjustments – Background

Since the late 1980s, the U.S. Tax Code has required that federal income tax brackets be adjusted for inflation annually, and inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency. For example, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts in addition to the 40 separate computations needed to inflation-adjust the tax bracket tables each year.

Key Tax Savings, Non-increase Estimates for 2016:

Projections based on the Department of Labor’s inflation figures for the 12-month period between August 31, 2014, and August 31, 2015 suggest most taxpayers will experience modest savings, compared to 2015 tax filings. For example:

Because of the income ranges bracketing the marginal tax rates have increased, a single filer with taxable income of $50,000 should owe $22.50 less next year due to the adjustments to the income tax rate brackets between 2015 and 2016.

A married couple filing jointly with a total taxable income of $100,000 should pay $45 less income taxes in 2016 than they will on the same income for 2015 because of indexing of their tax bracket for 2016.

The dependent standard deduction, used on the returns of individuals claimed as dependents on another taxpayer’s tax return, remains at $1,050 for 2016.

The additional standard deduction for those 65-years-old and older or who are blind will remain at $1,250 for 2016, as will the $1,550 additional amount for single aged 65 or older or blind filers.

Inflation-adjusted Tax Increase Estimates for 2016:

The personal exemption amount gets bumped up by inflation by $50, to $4,050 for 2016, up from $4,000 in 2015.
The standard deduction for single, married filing jointly, and married filing separately filers is expected to remain the same for 2016. The standard deduction for heads of household is expected to rise from $9,250 for 2015 to $9,300 for 2016. Any increase in the standard deduction, of course, can produce lower taxes by decreasing the taxpayer’s taxable income.

Conservative Tax Cuts Worth Ten Times More to High Earners Than Basic Earners
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Conservative Tax Cuts Worth Ten Times More to High Earners Than Basic Earners

New TUC-commissioned analysis published today (Thursday) of tax policies in the Conservative Party manifesto shows that the party has chosen to prioritise unfunded tax giveaways to the wealthy over support for the low-paid and middle earners.

It shows that the big winners from unfunded tax cut proposals would be higher earners, with the lowest paid getting much smaller gains.

The analysis looked at the average impacts for each decile across the household income spectrum. It found that the poorest decile would get nothing on average, and the second poorest only £2 a year. However, the average gain for the richest decile would be £875 a year.

Furthermore, while the maximum benefit a basic-rate taxpayer can expect from the proposed personal allowance increase is just £222 per year, the maximum benefit for a higher rate taxpayer would be £1,126.

In addition, a taxpayer earning between £50,000 and £100,000 (the level of income at which the personal allowance starts being tapered away) would also benefit from proposals to raise the higher-rate tax threshold, meaning that their after-tax income could rise by over £2,000 per year – around ten times more than the tax gains for a basic earner.

The Conservative manifesto also includes plans for extreme cuts to welfare and public services. The TUC believes that the relatively small tax gains for low earners would therefore be significantly out-weighed by major reductions to in-work support like tax credits and the services that low-paid families rely on most.

The TUC analysis modelled the impact of an alternative approach with identical costs to the Conservative proposals, which targets help to low and middle-earners through improvements to Universal Credit (see notes, and UC option 2 in the analysis). Under this approach, most middle-earners would be at least £500 better off (deciles 3,4 and 5), with some families more than £700 better off.

TUC General Secretary Frances O’Grady said: “We should be targeting help where it’s most needed. But David Cameron’s tax plans will give ten times as much to the rich as to families on regular earnings.

“Families have just suffered the longest decline in living standards since Queen Victoria was on the throne. But before wages have even recovered, the Conservatives are prioritising special treatment for the wealthiest.

“The pledge to help minimum wage workers is a con. Most of them don’t earn enough to pay income tax, but Conservative plans for extreme cuts will hit their tax credits, children’s benefits and local services. All in all, low-paid workers and their families will be left much worse off.

“A better plan to help low-paid workers and their families would be to target support through Universal Credit. This would make low and middle-earner families hundreds of pounds better off, as well as giving a boost to businesses in their local economy.”

(UK) Happy New Tax Year - the Resolutions You Need to Know
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(UK) Happy New Tax Year – the Resolutions You Need to Know

ICAEW advises taxpayers to check which changes could make a difference to their personal finances and to get expert advice if unsure.

Pensions will be an important area for change, and most taxpayers will see an increase in their pay packet as the personal allowance increases.

Key tax changes for 2015/16 for individuals:

The tax-free personal allowance rises from £10,000 to £10,600 on April 6. For those born before 6 April 1938 the so-called age allowance will be £10,660.

The starting rate of income tax on savings will be cut from 10% to 0% for savings income up to £5,000. The change means more people on lower incomes may be able to get their savings income paid without tax deducted.
Married couples and civil partnerships will be eligible for a tax break as the new marriage allowance lets the lower-income partner transfer £1,060 of their personal allowance to their partner – saving up to £212. This isn’t an extra allowance, just the transfer of part of an existing one, and can’t be claimed if either partner pays more than the basic rate of income tax.

The married couple’s allowance – for couples where one or both was born before 6 April 1935 – rises to £8,355. This is not to be confused with the new marriage allowance, and will be a better bet for those eligible, giving up to £835 of tax relief.

The maximum that can be invested in a tax-free ISA increases to £15,240. Junior ISA and Child Trust Fund allowances will be uprated to £4,080.

There are big changes for pensions. From 6 April 2015 those aged 55 or more can take money from their defined-contributions pension pot without having to buy an annuity or put the money into drawdown, and 25% of what they take out will be tax free.

The law will also change so that if an individual dies before the age of 75, they will be able to pass on their pension pot tax-free.

From 1 May families will not have to pay Air Passenger Duty on economy flights for children under 12.

(US) Using Tax Refunds for GAP Waivers Offers Peace of Mind
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(US) Using Tax Refunds for GAP Waivers Offers Peace of Mind

Unfortunately, this exciting moment can be ruined by one simple mistake – failing to purchase a guaranteed asset protection (GAP) waiver.

“Sometimes the unexpected happens. It doesn’t make sense to invest so much in a new vehicle without ensuring that you’re fully protected,” said Tim Meenan, executive director of the Guaranteed Asset Protection Alliance. “Without the reassurance a guaranteed asset protection waiver offers, consumers could get stuck with an unpaid loan for a vehicle they no longer own.”

It’s important for car buyers to know that the moment they drive off the lot with a new car, the value of the vehicle depreciates. If disaster happens in the form of theft or an accident that totals the car, insurance will often only cover the current market value – which can be far less than the value of the unpaid loan. The purchaser will be responsible for paying off the loan, even though he or she may no longer have the car.

GAP waivers cover the difference, offering an additional priceless value: peace of mind. There’s no need for stress when you should be enjoying the tangible benefits of your tax refund!

From a stolen vehicle to a bad accident, there’s no way to predict when something disastrous might occur, so consumers should make the smart choice to protect themselves with GAP protection.

UK Remains One of the Most Competitive Tax Destinations
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UK Remains One of the Most Competitive Tax Destinations

The UK remains one of the most competitive tax destinations according to over 100 of the largest British-based businesses participating in KPMG’s annual survey of tax competitiveness 2014. But Ireland has leapfrogged the UK to take the number one position this year.

In this year’s results, the UK has built on its 2013 absolute score in terms of the frequency with which respondents cite it as being in their top three most competitive tax regimes but it has slipped to second place overall. Luxembourg, the Netherlands, and Switzerland have all lost ground in the rankings as the table below shows.

Chris Morgan, head of tax policy at KPMG in the UK, said: “This year, respondents’ perception of how attractive Ireland’s tax regime is compared to other countries jumped significantly, with Ireland most frequently cited among the top three most attractive tax regimes overall. Perceptions of the UK’s attractiveness improved slightly versus 2013 but not enough to retain the top spot in the 2014 rankings.

“In contrast, the tax regimes in Luxembourg, Switzerland and the Netherlands are viewed as less attractive in 2014, perhaps due to significant proposed changes in tax regimes (especially in Switzerland), increased regulatory scrutiny on tax issues and concerns about tax rulings and EU State Aid issues (in the EU countries). While Ireland has also come in for criticism from some quarters on its tax policies, it appears that companies accept its very clear cross party commitment to retaining the low rate and believe that Ireland will introduce further measures like an Intellectual Property box regime to maintain its competitiveness.”

For the first time this year, the survey expressly asked about responsibility in business. Respondents agreed that responsible business should act in the interest of the common good and that tax was integral to this. Additionally, a significant proportion of respondents (38 percent) said they had become more transparent on how they report tax in the last 12 months. 44 percent felt they would be more transparent in the future, with this particularly pronounced among the FTSE 100 where just over half said so.

Little appetite for further radical change to system – simplicity and stability are what is wanted

In a similar vein to last year’s results, respondents believe that stability and simplicity determine the attractiveness of a tax system. Respondents were keen to see the corporate tax rate go down to 20 percent as planned by the current government. Respondents felt that this reduction was more important than a cut to business rates and almost a quarter (23 percent) saying they would increase their headcount as a result of this measure. There was relatively little support for tax devolution, with 63 percent saying it should not be decentralised and 27 percent saying it should be decentralised in line with devolution. A similar proportion (66 percent) was opposed to an allowance for corporate equity, which is a deduction based on the amount of share capital in order to level the playing field between equity and debt.

Chris Morgan commented: “According to our survey, stabilising and simplifying the tax system are the two most important measures to prioritise to drive growth over the next year. However, given that simplification would inevitably involve change to the system, there is a natural tension between these factors. The general sentiment seems to be that it makes sense to allow recent changes made to the tax system to ‘bed in’ before introducing any additional measures.”

Support for the OECD’s ‘BEPS’ action plan among respondents but concerns about compliance and UK interests

Looking to the wider tax landscape, a clear majority (76 percent) of respondents were supportive of the general aims of the OECD’s Base Erosion and Profit Shifting (BEPS) action plan. However, 61 percent expressed some concerns around the potential compliance burden of country by country reporting and over half (56 percent) of respondents felt that the UK authorities were unable to influence the overall BEPS agenda.

Chris Morgan commented: “Respondents are clearly supportive of the aims of the BEPS action plan but they do have some concerns. In particular, a significant minority believes that some work-streams could have a negative impact on the UK and more than half expressed concerns about the potential compliance burden of country by country reporting.”

In conclusion, Chris Morgan said: “It’s encouraging that the UK has held its overall score on tax competitiveness this year which suggests respondents remain broadly content with the direction of travel on UK tax policy. Ireland may have leapfrogged into the top spot but the results suggest that has been a result of it taking ‘votes’ from other European competitors rather than the UK. Respondents seem broadly happy with the direction of travel in terms of tax reform and support the OECD’s efforts to reform the international tax system. The sentiment among the senior tax executives we spoke to appears to be one of ‘steady as she goes’ rather than any urgent calls for radical reforms.”

Next Step Taken in Stamping Out International Tax Evasion
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Next Step Taken in Stamping Out International Tax Evasion

Today the UK, alongside 50 other countries and jurisdictions from across the globe, is taking the next step in stamping out tax evasion by signing a new agreement at the Global Forum in Berlin to automatically exchange information.

Under the agreement, unprecedented levels of information, including account balances, interest payments and beneficial ownership, will be shared with the UK from countries across the world in an international clampdown on tax evasion.

This will increase the ability of HMRC to clamp down on tax evaders, providing HMRC with the details of billions of pounds of assets held overseas by UK taxpayers.

Speaking ahead of the signing ceremony in Berlin the Chancellor of the Exchequer, George Osborne, said:

“Today marks a negotiating triumph for Britain, and our close ally Germany, in the fight against tax evasion.”

“It was three years ago when, with my German colleague Wolfgang Schäuble, I launched a campaign for a new international deal to catch people who evade their taxes by hiding their money overseas.”

“I never expected that within such a relatively short period we would succeed in getting 51 countries to sign up to this agreement.”

“Today we strike a blow on behalf of hardworking taxpayers who are cheated when rich people don’t pay their taxes.”

“Today we send a clear message to those who still think they can escape making a fair contribution to our public services and to reducing our deficit: you can hide no more; we are coming to get you.”

The UK has been leading the international fight against tax evasion, including through its G8 Presidency, and has played a crucial role in driving both the development and the early implementation of the new global standard adopted by the OECD in July this year.

The global standard of automatic information exchange to tackle tax evasion was developed by the OECD and agreed in July 2014.

51 countries and jurisdictions, including all G5 countries, are signing the multilateral competent authority agreement under which information will be exchanged at a signing ceremony at the Global Forum in Berlin today.

Together with France, Germany, Italy and Spain the UK launched an initiative for early adoption of the new standard in April 2013. In total 57 countries and jurisdictions – known as the Early Adopters Group – have now committed to a common implementation timetable which will see the first exchange of information in 2017 in respect of accounts open at the end of 2015 and new accounts from 2016.

A further 34 countries have committed to implement the new global standard by 2018.

Most Companies Now Taking Steps to Minimise Excise Tax Exposure
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Most Companies Now Taking Steps to Minimise Excise Tax Exposure

A new pulse survey from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), reveals that a significant number of U.S. employers are taking immediate steps to avoid triggering the excise tax on high cost health plans when it goes into effect in 2018.

Aon Hewitt’s soon-to-be-released survey of 317 U.S. employers found that 40 percent expect the excise tax to affect at least one of their current health plans in 2018 and 14 percent expect it to immediately impact the majority of their current health benefit plans. Surprisingly, a quarter of employers said they still have not yet determined the impact of the tax on their health plans, and more than one-third reported that their executive leadership and finance teams have limited or no knowledge of the implications of the tax for their organizations.

Of those employers that have determined the impact, 62 percent say they are making significant changes to their health plans for 2015:

  • One-third (33 percent) are reducing the richness of their plan designs through higher out-of-pocket costs, including 10 percent that say they will eliminate high-cost, rich design options
  • 31 percent are increasing the use of wellness incentives in their plans
  • 14 percent are evaluating private exchange options for pre- and post-65 retirees, while 7 percent are considering private exchanges for active employees
  • 14 percent are significantly reducing spousal eligibility or subsidies through mandates or surcharges
  • 5 percent are implementing narrow/high performance provider networks

“While the excise tax provision of the Affordable Care Act doesn’t go into effect until 2018, it is accelerating the pace of change for U.S. employers,” noted Jim Winkler, chief innovation officer forAon Hewitt’s Health business. “Over the next few years, employers expect to use both traditional and innovative tactics to make substantive changes to their health plans to minimize their exposure to the tax and put them on a path to lower rates of health care cost increases.”

Looking Ahead
Due to medical costs expected to rise more rapidly than the tax thresholds in the future, 68 percent of the employers Aon Hewitt surveyed expect the excise tax to affect at least one or the majority of their current health plans by 2023. When asked about future actions they are likely to consider in order to minimize their exposure to the tax, the vast majority (79 percent) expect to reduce plan design richness through higher out-of-pocket member share. More than 40 percent of employers say they are likely or highly likely to adopt cost control strategies, such as reference-based pricing and narrow provider networks.

Other strategies employers are likely or highly likely to consider include:

Restructuring coverage tiers to align with tax threshold ratios (37 percent)
Limiting FSA, HSA and/or HRA contributions counted against thresholds (31 percent)
Limiting buy-up options for employees (26 percent)
Moving to a private health exchange (16 percent)
Employer Views on the Excise Tax
Aon Hewitt’s survey revealed that an overwhelming majority of employers—88 percent—favor repeal of the excise tax. However, just 12 percent of employers say they have taken public actions, either directly or through a third-party industry organization—to express opposition to the tax.

That said, just 2 percent of employers said they are likely or highly likely to consider eliminating employer-sponsored health care coverage as a strategy for minimizing their exposure to the tax.

“While employers are continuing to make short and long-term changes to their health plans in anticipation of the excise tax, our data suggests that most would like to see the tax repealed,” notedJ.D. Piro, Aon Hewitt’s health care legal practice leader. “However the presence of the tax is not likely to deter the majority of employers from continuing to sponsor health benefits over the next 10 years.”

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It had been widely expected in the financial services sector that the pharmaceutical big hitter would make the move following its full acquisition of Alliance Boots.

According to sources, though the move from the US would allow Walgreen’s to pay lower tax rates, proposals being considered in Washington suggest it would be problematic.

This week saw the US announce plans to prevent foreign tax centres from being created.

The firm undertook what has been called ‘extensive analysis’. CEO and president of Walgreen’s, Greg Wasson, said that an independent committee subsequently advised that there was no way of reaching a ‘tax inversion’ structure which would satisfy the Internal Revenue Service.

Mr Wasson went on to explain:

“The company also was mindful of the ongoing public reaction to a potential inversion and Walgreen’s unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs,”

However, there is a body of shareholders urging the firm to shift its domicile tax base, with Goldman Sachs among them.

Walgreen’s decision has also ramped up the pressure on other firms in the US considering a move.

Another pharmaceutical firm, Abbvie, is lining up a takeover for Shire, with plans been drawn up to relocate its headquarters to the UK.

TaxPayers' Alliance Launches Campaign against Waste
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TaxPayers’ Alliance Launches Campaign against Waste

The TaxPayers’ Alliance, the independent grassroots campaign for lower taxes, has launched a 29-stop, nine-day War on Waste Roadshow in Westminster, with TaxPayers’ Alliance staff and local activists calling on public sector bosses to strip out waste from a campaign battle bus and a colourful pop-up stand. Among the stops are the constituency offices of the leaders of the three main political parties, the Grey’s Monument in Newcastle, Exchange Square in Manchester and Birmingham Town Hall. The Roadshow will highlight examples of wasteful and inefficient spending across England and Wales, such as:

• The £4,450 Nottingham Council managed to spend on an office Christmas tree
• The two wind turbines, costing some £30,000, which generated just £95 of electricity in their first year
• The £25,000 that the Arts Council of Wales spent to send an artist to South America so that he might put his experiences on a blog
• Sandwell Council spending £24,060 on appearance fees for minor celebrities including Keith Chegwin and Eastenders actor Neil McDermott
• An art gallery with a £72m price tag that closed down because nobody wanted it, asked for it, or visited it

Earlier this year, the TaxPayers’ Alliance showed that some £120bn of taxpayers’ money was wasted last year, a figure almost equal to the deficit.

New calculations by the TaxPayers’ Alliance demonstrate that the public debt burden tops £1.3tn, and is rising by £3,950 a second – the equivalent of putting a family holiday to Disneyland Florida on the country’s credit card. Cutting out waste will be a necessary part of bringing that down.

TaxPayers’ Alliance chief executive Jonathan Isaby said: “Far too much taxpayers’ money is wasted, keeping taxes high and taking precious resources away from essential services. It’s time for a war on waste right across the public sector.

“It would be nothing short of immoral to saddle the next generation with our trillion-pound debt mountain. We need to strip out wasteful and unnecessary spending and start living within our means again.

“For too long taxpayers’ money has been spent with impunity, with little accountability and not enough transparency. The War on Waste hopes to change that and remind those we trust with our money that we’re watching how it is spent very carefully indeed.”

Big Business Opens Up on Tax
Corporate TaxTax

Big Business Opens Up on Tax

There has been a step change in the tax disclosures made by the UK’s largest listed companies, a new PwC report published today shows.

Almost half (49) of the FTSE 100 now disclose information on their overall approach to tax, a 50% increase on 32 companies that explained their approach the previous year.

Andrew Packman, tax partner at PwC, said: “It’s evident that companies are sharing more information about their tax affairs. Increased interest in tax and a desire to build trust with customers, employees and investors are undoubtedly encouraging voluntary tax disclosures.

“Whether we will soon see the majority of FTSE firms disclosing similar levels of detail on tax is uncertain. Tax transparency varies from industry to industry and some investors simply don’t demand more information or are mindful of the costs involved. But all businesses should be considering these issues at board level and have an agreed approach to tax transparency. Interest in tax is not going to go away.”

As well as information on tax policy, the report shows that companies are making disclosures about the range of taxes they pay. With corporation tax no longer the largest tax borne by businesses, 24 companies are now reporting details of other taxes borne and collected besides corporation tax, compared with 19 the previous year.

Andrew Packman, tax partner at PwC, said: “Companies are starting to see the benefits of voluntary disclosure of all taxes. It is total taxes that governments are interested in to fund public spending, not corporation tax alone, so it makes sense to provide the full picture.”

The report also highlights that geographical reporting is now on the agenda of the UK’s biggest companies, with a number of mandatory requirements already in place. Some 22 FTSE100 firms (up from 17 the previous year) now provide some breakdown of taxes around the world, either by region or by country. Eight of these firms are extractives companies, who experience particular interest in where they pay tax, and four are banks, who will soon have to communicate detailed figures as part of the CRDIV transparency requirements.

“While we are seeing more firms reporting taxes around the world, it’s important to bear in mind that some companies operate almost entirely within the UK,” said Packman. “A business may choose not to give a global breakdown of taxes because it would be meaningless.”

Tax Risks Accelerating Worldwide
Corporate TaxTax

Tax Risks Accelerating Worldwide

More than four out of five (81%) companies surveyed expect already heightened tax risks to accelerate in the next two years. This is according to a new global report by EY, Bridging the Divide, which also finds companies view the potential lack of coordination by national governments around the Organisation for Economic Cooperation & Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project as a major risk.

The EY survey of 830 tax and finance executives (including 120 chief financial officers) in 25 countries offers the first quantifiable global sample of how companies around the world view the OECD BEPS project.

Nearly one-third (31%) of all companies surveyed predict the BEPS roll-out will be characterized by relatively limited coordinated action and by increased unilateral action by countries. Three-quarters (74%) of the largest companies surveyed (those with annual revenues in excess of US$5 billion) say they believe some countries already see the very existence of the OECD’s BEPS project as a reason to change their enforcement approach before any recommendations have passed into national law. The majority of these largest companies (61%) as a result fear that double taxation will increase in the next three years.

“International companies share the OECD’s concern that coordinated action by national governments is necessary to ensure any BEPS-related recommendations are productive,” says EY’s Global Tax Vice Chair, Dave Holtze. “The OECD can play an invaluable role in preventing what it has called a “global tax chaos” that results in double taxation and increased controversy by pressing for common approaches and consistent standards.”

For all companies responding, China, India, and Brazil (in that order) are the top three emerging market countries identified as having the most significant potential for risk related to tax.

As a result of these increased risks, 78% of the largest companies agree or strongly agree that tax risk and controversy management will become more important in the next two years. Yet three-quarters of these companies feel they have insufficient resources to cover tax function activities, up from 57% in 2011. Forty-three percent of all companies use no technology or rely on local personnel to manage tax audits and incoming data requests from the tax authorities.

Holtze continues: “Today’s global business environment presents a complex assortment of tax risks for multinationals, particularly when operating in markets that may be less familiar. Companies need to get actively engaged on this issue, from ensuring that they have open lines of communication within their own enterprises to making their views known and understood on issues such as BEPS.”

New Tax Plans are Flawed
Corporate TaxTax

New Tax Plans are Flawed, Says PwC

Pricewaterhousecoopers has warned that plans outlined in the Budget for new HMRC powers to settle unpaid demands by taking money from people’s bank accounts could have grave consequences for businesses and individuals if errors in the process occur, and could undermine the principle of independent taxation.

Simon Wilks, tax partner at PwC, said: “It is absolutely right that people should pay tax that is due, but in our view, any benefits from these proposals are far outweighed by the potentially extremely serious consequences for individuals and businesses if errors are made. Under the current plans there will be no compensation for these serious consequences; errors can and do occur.

“While the tax HMRC expects to raise is a relatively small percentage (0.02%) of the tax they collect, it is likely to be a significant amount to anyone affected and in some cases could have severe knock on consequences on people’s borrowing power and credit rating, particularly if it is in error.

“There are practical consequences that haven’t yet been fully thought through. In the case of joint accounts HMRC will assume the money is held equally, so they could end up taking money that doesn’t belong to the taxpayer and therefore undermining the principle of independent taxation. The proposals could allow HMRC to take money in preference to other creditors which will be a cause for concern for all creditors.

“If HMRC goes ahead with these proposals there need to be strong safeguards in place and a thorough examination of the potential benefits weighed against the personal and commercial cost. In practice we believe workable and properly safeguarded new procedures would in the end look like a streamlined version of their current ability to recover tax with the safeguard of a Court, as any other creditor is required to do. We would encourage further consideration of whether these goals can be better achieved by improving the efficiency and throughput of the current procedures.”

Rewrite Global Tax Rules
Corporate TaxTax

Rewrite Global Tax Rules, Says Oxfam

The G20’s plan to tackle corporate tax dodging, devised by the Organisation for Economic Co-operation and Development (OECD), needs a radical shake up so that developing countries can capture their fair share of foreign business activity, says Oxfam.

The report, Business Among Friends, says that today’s international tax rules allow multinational companies to ‘disappear’ their profits including to other countries in order to pay low or no tax. Oxfam warns that many of the world’s poorest economies that are being worst hit are being left out of the OECD’s negotiations to tackle this scandal.

According to new figures from a forthcoming study by tax expert Alex Cobham and economist Petr Janský, if multinationals were taxed in countries where real economic activity takes place, then corporate tax revenues in some developing countries could increase by more than 100%.

Oxfam International Executive Director Winnie Byanyima said: “Corporations are rigging the rules and taking advantage of poor countries, fuelling a vicious cycle of inequality. Developing countries are being locked out of negotiations, creating a risk that any revisions to the rules will only serve the interests of the wealthiest and most powerful.”

Cobham and Janský’s figures, which look at misalignment between US multinational activity and profits, reveal that under more progressive corporate taxation rules the Philippines would see a 75% increase in their multinational corporate tax base, Ecuador a 99% increase, South Africa a 106% increase and India’s tax base would go up by over 180%. Honduras would see their tax base boosted by a massive 400%.

For poorer countries it is impossible to calculate the potential levels of tax income increases, which shows how poor the systems are for data collection and how high the levels of tax secrecy. But it is likely they would also stand to gain by significant margins.

Governments are being pitted in competition against each other to attract foreign investment. This is resulting in many countries being pressured to offer businesses sweet deals, such as tax exemptions or low tax rates. This can leave countries facing huge tax gaps, when they need this money to improve basic services such as healthcare and education. It’s estimated that the “tax gap”—the amount of unpaid tax due by multinationals to developing countries—is about $104 billion a year.

Oxfam believes that non G20 countries must be able to participate in any negotiations to reform the international corporate tax system and lack of capacity cannot be used as an excuse not to include them. Rich countries, like the UK, must support poorer nations to give them the knowledge and capacity to collect the taxes they are owed and governments need to talk seriously about creating a World Tax Authority to ensure fair and equitable tax systems that deliver for the public interests of every country.

Winnie Byanyima said: “If done properly, the OECD Action Plan presents a unique opportunity to overhaul international corporate tax rules to the benefit of all economies. This opportunity is too rare and important to be squandered.”

UK Tax Changes Attract Foreign Business
Corporate TaxTax

UK Tax Changes Attract Foreign Business

Recent changes to the UK tax system aimed at improving its attractiveness to businesses are paying dividends, according to KPMG in the UK. The firm is working with almost 100 businesses that are actively considering locating operations in the UK.

Jane McCormick, Head of Tax and Pensions at KPMG in the UK, said: “The sea change in sentiment towards the UK’s tax system as attractive to business is evidenced by the fact that we are currently talking to almost 100 businesses around the world about locating activities here. It’s only four years ago that UK listed companies were announcing they were quitting the UK. Today, overseas businesses are lining up to come here.”

The 94 businesses KPMG is currently working with cover a wide range of activities but the most common are pharmaceuticals, consumer markets, diversified industrials, manufacturing, automotive, oil & gas, and the financial sector.

The nature of the projects is also diverse. In terms of the types of activity that these businesses are looking at, the two most common are using the UK as a location from which to hold international operations and using the UK as a centre for business operations. In addition, KPMG is working with a number of businesses looking to move their headquarters to the UK, moving to the UK as part of a wider acquisition structure, using the UK as a centralised intellectual property hub or establishing in the UK as the principal hub in its wider supply chain.

“What is particularly striking about the projects we are currently discussing with overseas businesses is the breadth and variety of activities and locations within the UK that they cover,” said McCormick. “London and its financial services centre is well known as an international hub but many of these projects are looking at operations outside the capital in sectors such as manufacturing, consumer goods and diversified industrials. The value of being an attractive destination for business is in the employment and economic activity that is generated and the level of interest that we are seeing suggests that the policy of making the UK more attractive from a tax perspective is working.

“Every project that comes to fruition will generate additional tax revenues in the UK, which is of course a very positive development for the Government and the Treasury.The level of interest in the UK and the seriousness with which it is being considered suggests that the projects we are engaged in will result in real jobs and real economic activity coming to the UK,” she said.

40p Tax Rate
Corporate TaxTax

40p Tax Rate

The Chancellor’s likely move not to give relief on the 40p tax rate in his Budget tomorrow has been branded as ‘short termist’ and slammed as a ‘disincentive to aspiration,’ by the boss of one of the world’s largest independent financial advisory organisations.

The comments from Nigel Green, deVere Group’s founder and chief executive, come a day before George Osborne’s penultimate budget before the next general election, in which he is expected to reduce the threshold for the 40p tax, thereby dragging more middle-class workers into the higher band.

Mr Green comments: “Increasing the tax burden on more and more middle class workers by pulling them into the top band will result in a significantly higher proportion of the population with a reduced ability to save for their futures.

“With many of today’s working population likely to spend 25 to 30 years in retirement, creating additional barriers to saving adequately for older age – which is what this measure does – is extremely short termist.

“There needs to be rewards, such as greater pension tax reliefs, not disincentives, for prudently putting money aside into pensions.

He continues: “Clearly, should the majority of the population be financially independent in older age this means not only will they and their families be able to enjoy the retirement they desire with a higher disposable income, which will boost the economy, but they are likely to be less dependent on the State.

“With a steadily ageing population, should the middle classes not be able to financially support themselves, the State’s already burgeoning welfare bill will skyrocket due to increasing medical and care costs.”

As a further indictment on the 40p rate, Mr Green, deVere Group’s chief executive, adds: “It clearly serves as a disincentive to striving middle class workers from wanting to earn more, a disincentive to working harder, a disincentive to securing a promotion – in short, it serves as a disincentive to aspiration. Naturally, this is all to the detriment of the British economy, both now and for the longer-term.”

The Patent Box: Unfair Competition?
Corporate TaxTax

The Patent Box: Unfair Competition?

Businesses are under immense pressure to produce innovative new products to keep up with the competition.

The UK’s Patent Box tax incentive was developed as a spur to industry to develop and patent new products and encourage innovation. But now this generous tax regime, introduced in April 2013 has come under fire from other EU countries, notably Germany, who feel that it represents harmful competition in the race to attract foreign corporate investment.

The Patent Box was introduced into UK tax legislation in April 2013. It allows profits arising from qualifying patents to be taxed at a reduced rate of corporation tax. If the Patent Box continues, by 2017 the rate of corporation tax applied to Patent Box profits will be 10%, a significant discount compared to the anticipated rate for other taxable profits.

The rate is currently 15.2% compared to the main rate of corporation tax of 23%. It will fall to 13.3% on 6 April 2014 and gradually taper down to 10% from 1 April 2017, when the main rate of corporation tax is expected to be 20%.

Too much of a good thing?

The challenge to the Patent Box comes as part of a general clampdown on tax regimes that are perceived to facilitate profit shifting rather than genuine economic development. The EU’s Code of Conduct Group has fielded complaints from several member states (including Germany) that the Patent Box is too generous and represents harmful tax competition.

The EU’s Code of Conduct Group was not able to reach a majority decision about this and the matter was referred up to The Economic and Financial Affairs Council (ECOFIN). ECOFIN met in December but was unable to conclude whether the UK’s Patent Box regime is a ‘harmful’ tax incentive. It recommended a review of existing preferential intellectual property regimes by the European Commission, which is expected to be concluded by mid-2014.

The review will look at economic substance and compliance with OECD principles of each regime. It is likely to differentiate between measures that encourage genuine economic activity and those that merely facilitate profit shifting. The review is expected to take place under the Greek presidency of the EU and be concluded by mid-2014.

The ‘active management’ test

The review of the Patent Box will concentrate on whether the ‘active management’ test, which does not require research and development (R&D) to be performed in the UK, is ‘harmful’ tax competition.

‘Broadly ‘active management’ means input into the decision-making processes relating to the development and exploitation of intellectual property rights.

This would include activities such as deciding on whether to maintain protection in particular jurisdictions; granting licences; researching alternative applications for the innovation or licensing others to do so.

Where the rights are being exploited by incorporating the item into products, activities such as deciding on which products go to market, what features these products will have and how and where they will be sold would also count as ‘active management’.

The UK Government robustly defends its view that in today’s global business environment it is not realistic to demand that R&D has to be performed in the UK and if there was a requirement to carry out the R&D in the UK, this would be in breach of European Union law.

The European Commission’s concerns about the ‘active management’ test are ill founded.

The UK tax legislation has been carefully drafted so that passive owners of qualifying patents cannot benefit from the reduced rate of corporation tax. Groups that carry out research and development outside of the UK not only have to adhere to the ‘active management’ conditions but also to strict ‘development’ conditions before Patent Box benefits can apply. The furore caused by the Patent Box in Europe highlights the issues facing multinational businesses operating in different, often competing tax regimes, where one country’s ‘generous tax incentive’ is seen by another as ‘unfair competition.’

In any event, the EU Code of Conduct is not legally binding, so the UK Government potentially resist any adverse findings that come out of the review, which could be a gift in the current political environment.

So for now, it is business as usual, with the expectation that the Patent Box incentives will continue to be available in its current form.

Companies should be looking to make the most of a tax regime that other EU members think too generous.