BEPS UK Profile
1) Has the UK implemented any BEPS recommendations? If so, which Action Items?
The UK has implemented the following Action Items:
- Action 2: Hybrid financing arrangements—Legislation will be introduced in Finance Bill 2016. The measure applies to payments made on or after January 1, 2017, involving hybrid entities or instruments that give rise to a hybrid mismatch outcome.
- Action 4: Interest deductions and other financial payments—Public consultation only, plus indication of headline actions to be legislated on April 1, 2017.
- Action 5: Counter harmful tax practices—
- Patent Box rules are to be amended based on the Modified Nexus Approach proposed by the OECD, which requires tax benefits to be connected directly to research and development expenditures. Legislation will be introduced in Finance Bill 2016 to amend the Patent Box rules. The changes generally have effect from July 1, 2016.
- The Diverted Profits Tax was introduced, with the intention of making it tougher for multinational enterprises to divert profits out of the UK. This ensures that multinationals pay tax in the UK when economic activity has taken place in the country. The Diverted Profits Tax was enacted on April 1, 2015.
2) What is the UK’s expected timeline for implementing country-by-country reporting?
- Action 13: Transfer pricing documentation—Legislation introducing country-by-country reporting is still in draft format. The new regulations are to apply for 2016.
Country-by-country reporting has also been effected.
3) If Your Country has already implemented CbC, what has been the reaction from taxpayers?
Taxpayers seem neutral/resigned.
4) What measures are multinationals in the UK taking to prepare for country-by-country reporting?
Multinationals in the UK are doing some data collating and dry-runs. Others are sticking their heads in the sand, taking comfort in the fact that the first reports will not be required until December 31, 2017. One privately owned group is splitting itself into smaller groups to fall under the threshold.
5) If the UK has already implemented CbC, what challenges are taxpayers facing or anticipated to face?
Taxpayers are facing the challenge of data collation, particularly the scale of the exercise and the lack of a materiality threshold.
6) Are the UK taxing authorities taking any measures to prepare for any changes brought about by BEPS (e.g., changes in staffing, increases in budgets)?
None. There has been a 25% increase in staff of the Mutual Agreement Procedure/Advance Pricing Agreement team, but no increases in the overall budget.
On April 1, 2014, the management of over 2,000 of the largest businesses were brought together under a single “Large Business Directorate.” The objective of the Large Business Directorate is to enable HMRC to deploy its resources more effectively to ensure that multinational businesses comply with the tax rules.
7) How will country-by-country reporting affect how you provide services to your clients?
It probably won’t. We advise clients on how to approach country-by-country reporting, but they are undertaking the work themselves to collate the necessary information. There has been a slow start to clients reviewing potential outcomes so far.