Category: Tax

London Tops List of Attractive Cities for Business
Human CapitalTax

London Tops List of Attractive Cities for Business

London has for the first time posted the highest score among the 30 cities studied by PwC US in the sixth edition of its Cities of Opportunity report.

London, the only city to finish first in three of the 10 indicators—economic clout, city gateway and technology readiness, a category it ties with Seoul—was followed by New York and Singapore. The study shows that top ranked cities embody the energy, opportunity and hope that draw people to city life. High performing cities also find the right balance between social and economic strengths in a world being quickly shaped by inescapable global trends.
Moving up four spots from the last edition, Singapore takes third place overall and finishes first in two indicators—ease of doing business and transportation and infrastructure. Despite not having a top rank in any indicator, New York continues to show strong consistency across most of the categories. Rounding out the top five cities are Toronto and San Francisco.

As for London, the city outperforms New York by a good margin after finishing second in a virtual tie with New York in 2012. Results show London is developing a strong foundation for the future with top economic strength, openness to the world and technology readiness—all critical building blocks for further growth in a digitally and physically connected world. In addition, London finishes a narrow second to Paris in intellectual capital and innovation and comes in second—virtually tying Sydney—in demographics and liveability, both key areas for future urban prosperity.

“Changing demographics, shifts in economic power and the concepts of urbanization being realized are the forces taking the world in a new direction,” said Bob Moritz, PwC’s US Chairman and Senior Partner. “Cities are increasingly competing for talent and are working hard to capture the promise of growth from the many opportunities in today’s rapidly changing world. As a result, people are looking for more potential for personal opportunity while demanding critical elements to increase quality of life. It’s the top ranking cities in this year’s study that are demonstrating the foresight that is needed to adapt, stay competitive and thrive for a sustainable positive future.”

Cities of Opportunity 6 also highlights the increasing competitiveness of emerging cities across several key indicators. Beijing, which ranked 19th, finishes in the top three in both the city gateway and economic clout categories, while Seoul is top in technology readiness and is the only emerging city to reach the top 10 in the ease of doing business indicator. Seoul and Buenos Aires also break into the top three for transportation and infrastructure, while Johannesburg is in the top three for cost.

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.

UK “Needs More Women in IT”
Human CapitalTax

UK “Needs More Women in IT”

Increasing the number of women working in IT could generate an extra £2.6 billion a year for the UK economy, according to a new Centre for Economics and Business Research report commissioned by Nominet, the internet company best known for running the .uk internet infrastructure.

Women currently make up less than one fifth of the IT workforce. Based on current trends, the IT gender gap is set to widen slightly over the coming years. The report found that if the gender gap reduced and women filled the skills shortage in IT, the net benefit for the UK economy is estimated to be £2.6 billion each year.

The report found that 76% believe they lack suitably skilled staff in IT. Of these, 58% say this negatively affects productivity levels, estimating on average that productivity levels are 33% lower as a result. And 59% agree that their IT team would benefit from having a more gender-balanced workforce, while only 7% disagree. Improved communication skills (52%), improved staff morale (48%), and bringing new ideas to the organisation (46%) were the most frequently cited benefits.

The report found that low female participation in IT education is a key factor in the workforce gender gap. Only a third of ICT A-level students and less than a tenth of Computer Studies A-Level students are female. The imbalance remains at university, with girls accounting for only 19% of students taking computer science degrees. At present, only 9% of female students taking IT degrees go on to an IT career, compared with 26% of men.

The research also found that 53% agree that women find working in technology jobs less attractive than men do. Of these, 60% of believe that the IT profession is still perceived to be male-dominated, and 33% think IT is not promoted enough as a viable career option for girls in school or college.

Nominet’s Director of HR Gill Crowther said: “The digital economy is driving economic growth in the UK. Given the extent of the IT skills shortage, we can’t afford to only recruit from half the talent pool. It’s alarming to think that, if current trends continue, the IT gender gap will get bigger rather than smaller. We need to attract more women into the technology industry at every level and this starts with encouraging girls at school and university to study IT subjects. The new curriculum coming into force in September offers a fantastic opportunity for girls to become engaged with more technical subjects as the study of computing – and coding – becomes compulsory for all schoolchildren.”

Brewery Aims to Hitch up Global Economy
Human CapitalTax

Brewery Aims to Hitch up Global Economy

Two Tales Brewing, a family-owned brewing company from the Czech Republic that exports beer novelties around the globe, is planning to boost the global economy through a unique charitable marketing campaign.

Targeting the United States—which the company has determined to be the home base of the financial crisis—Two Tales searched for the root of the problem, exploring college dropouts, criminal activity and drug use. Exhaustive research brought the company to the unequivocal conclusion that the common denominator amongst all issues considered is none other than sagging trousers.

Two Tales has therefore pledged that for every six pack sold during the campaign they will donate a belt to an American citizen in need.

“It’s not only a matter of taste, like with our beers,” said Se Padilla, one of Two Tales Brewing’s founders. “This project is of pivotal importance to us. We have the chance to stand up for our beliefs as a company, but we also have the power to work towards the greater good: reviving the global economy.”

The company’s owners are convinced that with Americans’ hands freed from holding up their trousers, they will be free to carry the burden of the economy.

“It’s time for small countries to make history,” explained Jan Martasek, co-founder of Two Tales Brewing. “For the first time ever, a country known for its ice hockey players is now coming to the aid of a nation thirty times its size, with the help of craft beer,” Martasek concludes.

Two Tales Brewing was founded in 2007 by US citizen Se Padilla, professional musician, operator of diverse bars and restaurants and owner of the Prague Beer Museum, and Czech Canadian Jan Martasek, a financial investments manager.

The current Two Tales Brewing product spectrum consists of six different types of craft beers, from lager, ales and flavoured to non-alcoholic, all brewed in Bohemia under the Two Tales brand. The beer specials are available in 0.33 l bottles and kegs. Most exports land in the Nordic countries and in South-east Asia.

Small Businesses Work Together to Achieve Growth Goals
Human CapitalTax

Small Businesses Work Together to Achieve Growth Goals

More than half of early-stage companies identify sharing resources as vital to SME success, according to a report published by car sharing and car club service Zipcar, in conjunction with StartUp Britain and Ashridge Business School.

Rather than a last resort to cut costs, for the majority of those surveyed, collaboration represents a key element of their business plan, with over a fifth choosing to share office space and 31% sharing their workforce with another company.

“Sharing with other companies enables start-ups to access resources they might not otherwise afford, as well as providing greater flexibility, reducing overheads and improving the bottom line,” said Zipcar UK’s general manager Mark Walker.

“In the UK lots of companies are large processors with huge turnovers, but they are quite inflexible,” said Charles Baughan, owner of Devonshire sausage firm Westaways, who was surveyed for the report. “SMEs like ours can dodge around the big businesses, adding value and being flexible by exchanging skills with others.”

Fashion business owners Sam Brightmore, of small boutique chain Bottega, and Donna Ida, who runs the denim brand of the same name, are another pair who, the report says, have discovered the advantages of co-operation, having initially made contact through Twitter to share appreciation for each other’s’ collections but have since found there to be significant cost savings in joining forces on international buying trips.

Competition Intensifying for Human Capital Management Vendors
Human CapitalTax

Competition Intensifying for Human Capital Management Vendors

In its first half 2014 Technology Value Matrix for Human Capital Management (HCM), Nucleus Research finds leading vendors are increasingly consolidating core Human Resources (HR), talent management and workforce management (WFM) functions onto a single platform.

It also found that, where mid-market vendors are innovating to develop new functionality from the ground up, larger, established vendors are looking to acquisitions and integration of their existing point solutions to build out their platforms.

There is nothing ‘magic’ about the Nucleus Value Matrix, which categorizes vendors according to usability and functionality. This determines which solutions provide the most value to organizations. While large vendors such as IBM, Oracle and SAP have kept pace with each other by acquiring smaller entrants in traditional and non-traditional labor management since last year, flurries of new investments have helped to establish smaller, mid-market vendors as capable challengers. Ceridian, Infor and Ultimate are competitively positioned to potentially overtake Oracle and SAP as HCM leaders while Cornerstone and Sum Total Systems continue to challenge, gaining ground in the leader quadrant.

“Competition is reaching a fever pitch as vendors shift from point solutions to the end-to-end human capital management platforms customers are demanding. And with the establishment squaring off against some well-financed midmarket players, it’s a battle of acquisition versus new innovation, making HCM one of the most exciting and driven areas in enterprise software,” said Zachary Chertok, analyst at Nucleus Research.

The Nucleus Matrix additionally finds vendors are linking HCM with Big Data analytics and business intelligence (BI) focusing their efforts on providing integrated functionality across the core competencies of HCM while integrating HCM into the bigger picture of operational analytics. Many are integrating their data sets across multiple solution offerings to compile analytics into common dashboards that make data more accessible, and that provide new and adaptive insights and visibility for real-time problem solving. Nucleus has recently seen increased interest in new innovations and new strategies exploring cloud capabilities and social collaboration.

Human Capital Centre of Expertise Launched
Human CapitalTax

Human Capital Centre of Expertise Launched

Pronounced “UKC,” the company helps employers avoid the spiraling costs associated with bad hires. It is the brainchild of founder Danny Kellman, who has witnessed first-hand the detrimental effect that hiring the wrong employee, from front line to leadership level, can have on an organisation.

“The effect of hiring the wrong person can resonate throughout a company,” said Kellman, whose experience encompasses 10 years in a variety of HR functions. “It isn’t solely about the cost of training and time invested in bringing that new employee in. It’s about the impact on team morale, employee engagement, and productivity, too.”

HUCACE offers what it considers to be a “first of its kind” one-stop talent acquisition experience utilising the application of science, technology, and emotional intelligence.

Employers can select which stage of the recruitment process they need assistance with, and choose from a range of comprehensive services including:

– Recruitment Process Outsourcing (RPO)

– Job Postings

– Pre-screening questionnaires

– Realistic job preview surveys

– Psychometric assessments

– Job-specific skills tests

– Interview process consultation or creation

– Reference and Background checks

“Our offering is unique as our clients can select a single element, or a bundle of services – whatever meets their specific needs,” Kellman said. “For instance, the psychometric assessments and background checks aim to significantly reduce recruitment costs and dramatically increase ROI by identifying the best candidates for each specific vacancy.”

Kellman is emphatic that candidates, as well as employers, receive the highest quality of service. “We ensure that all applicants are treated with respect and dignity throughout the selection process,” she said.

Allegro Named in '20 Most Promising' List
TaxValue Chain Management

Allegro Named in ’20 Most Promising’ List

Allegro Development Corporation, a leading provider of commodity value chain and risk management (CVCRM) software, has been named by CIO Review Magazine as one of the top 20 Most Promising Risk Management Solution Providers for the Capital Market.

The magazine featured Allegro in its March edition citing its contributions to the commodity value chain, specifically the software’s ability to help clients better monetize their assets, reduce risk and realize greater returns in a shorter span of time.

Allegro’s Chief Executive Officer, Ray Hood said: “The uniqueness of this solution is that it allows customers to select only the components and functionalities they need, while simplifying deployment and enabling companies to quickly expand into new markets.”

Allegro’s flagship product, Allegro 8, has an enterprise-level risk management architecture that allows companies to manage operations and integrate new components as their needs change. The software is used by traders, risk managers, and decision-makers across the globe. The solution uses grid computing to manage numerically intensive processes such as real-time valuation and optimization and enables traders and marketers to view existing positions and to dynamically optimize them based upon real-time connectivity to more than 22 commodity exchanges as well as streaming pricing data.

99p Downloads Hit by VAT Change
Indirect TaxTax

99p Downloads Hit by VAT Change

 

Changes to how VAT is taxed may mean digital stores like iTunes and Google will no longer be able to offer 99p music downloads.

New legislation, announced as part of the recent budget, requires online retailers to put VAT on media downloads based on a customer’s location.

Both Apple and Amazon have, until now been able to place lower VAT on downloads, due to their headquarters being based in Luxembourg. However the new scheme would instead be based on the location of the consumer, meaning buyers in the UK would pay 20% as opposed to Luxembourg’s 15%.

It is still not clear whether any increases would be passed onto consumers or taken on by publishers, however the end of the 99p download could have a huge impact on digital sales, which now account for over half of total sales figures in the UK.

The move comes as the Government attempts to get tougher on multinationals and forms part of ‘international efforts to develop tough, new global tax rules’, which forecasters suggest could generate an extra £300m in tax revenues during the first year.

A 2012 report revealed that the UK was losing out on more than £1.5bn in VAT every year on digital services, including music and video downloads.

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.

Stephen Alleway Joins Questro International
TaxTransfer Pricing

Stephen Alleway Joins Questro International

Questro International, a new transfer pricing advisory firm has announced the opening of their first office in Zurich and the recruitment of Stephen Alleway as their new head of Transfer Pricing in Switzerland.

Questro International was founded in October 2013 by experienced and internationally operating transfer pricing professionals. Stephen joins the firm after 15 years of Big 4 transfer pricing experience at both PricewaterhouseCoppers (PwC) and Deloitte covering the UK, Australia, and Switzerland.

Stephen was most recently the founder of Deloitte’s transfer pricing group in Switzerland and assumed a variety of transfer pricing leadership roles during his time as a Partner with the firm.

Stephen has more than 15 years of tax experience in the field of transfer pricing. He has acquired broad experience in leading large global projects for Swiss and foreign headquartered multinationals.

Stephen has been named as a leading transfer pricing adviser in various publications since 2007 and has been listed in recent Euromoney/Legal Media Expert guides. He was cited in the 2012 publication of World Tax, the International Tax Review’s directory of leading tax advisory firms around the world, as an adviser recommended for his transfer pricing work by contemporaries in the Swiss market. He is a contributor to publications on transfer pricing and speaks widely on the subject in Switzerland and Internationally.

Before joining Questro, Stephen was recruited in 2006 by Deloitte AG in Switzerland to establish and build up a transfer pricing group in Switzerland. Under his leadership, he established a well regarded team of professionals and helped raise Deloitte’s profile locally. This was recognised in the market with various client wins and awards, including International Tax Review’s Transfer Pricing Firm of the Year Award in May 2008.

Stephen is an experienced practitioner, having led client assignments in many countries around the world and across all industry sectors. He holds a Bachelor of Social Science Degree (1st Class with Honors) from The University of Birmingham.

Stephen comments: “I am delighted to be joining a group of senior professionals in launching a new and truly innovative transfer pricing advisory firm. Transfer pricing has never been higher as an issue on the global tax agenda. For me, it makes perfect sense that our first office should open in Switzerland, which finds itself at the heart of so many client’s TP structures and is under great international scrutiny within the current G20 debate about tax base erosion and profit shifting”