Eight Forum on Tax Administration (FTA) members start a multilateral TP and PE tax risk assurance programme
The June 2017 discussion draft sets out high-level general principles for the attribution of profits to PEs in the circumstances addressed by Action 7 of the BEPS Action Plan.
It gives guidance on the following:
- PEs arising from article 5, paragraph 5 of the OECD model treaty, including examples of a commissionnaire structure for the sale of goods, an online advertising sales structure, and a procurement structure.
- PEs created as a result of the changes to article 5, paragraph 4, including an example on the attribution of profits to PEs arising from the anti-fragmentation rule included in new paragraph 4.1 of article 5.
Interested parties are reminded to send comments on the proposals in the June 2017 discussion draft by September 15, 2017.
(Further comments are not invited on the 2016 discussion draft and on the PE definitions agreed in Action 7 that were published in the 2015 Final Report.)
Source: Alliott Group 23 May 2017
In recent times, global tax reform has been moving at a lively pace, driven by several factors: the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) initiative, local corporate tax reform initiatives, but just as importantly, the concept of permanent establishment (PE). Alliot’s Global Mobility Services Group experts explain the intricacies of PE and the situations that can give rise to a PE issue in their countries.
The Indian Supreme Court has upheld an earlier High Court decision that the Formula One World Championship (F1) has a Permanent Establishment (PE) in India and so is liable to be taxed there for the Indian F1 race.
The High Court had previously held that provided the presence of a taxpayer was in a physically defined area, permanence in such a place could be relative to the context of the business. “The taxpayer carried on business in India for the duration of the race, two weeks before it and a week after the race. Consequently, the F1 circuit constitutes a fixed place of business under Article 5(1) of the India-UK tax treaty.”
Also it was held that payments made to F1 were business income and not royalty, as the logos used during the championship were not for intellectual property purposes but for hosting the event.
The Supreme Court ruling “has dealt with the most litigated subject of tax, PE, which has evolved over time to be much more than the fixed structure of brick and mortar from where the business of the assessee is conducted. In this case, for the first time in the history of tax litigation, a car race circuit has been held to be the fixed place PE of the assessee,” said Rakesh Nangia, managing partner, Nangia and Co.
Details of the ruling are yet to be made public.
The measure will affect persons who make intellectual property royalty payments to non-resident connected persons under tax avoidance arrangements and/or who make intellectual property royalty payments to non-resident persons in respect of which there is currently no obligation to deduct income tax at source.
It will provide additional obligations to deduct income tax at source from royalties where either:
– arrangements have been entered into which exploit the UK’s double taxation agreements (DTAs) in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world
– the category of royalty is not currently one of those in respect of which there is an obligation to deduct tax under UK law
– royalties which do not otherwise have a source in the UK are connected with the business that a non-UK resident person carries on in the UK through a permanent establishment in the UK
The measure will align the UK deduction of tax at source regime in respect of royalties with the UK taxing rights over such income and counteract contrived arrangements that are used by groups (typically by large multi-national enterprises) that result in the erosion of the UK tax base.
This legislation is effective from 17 March 2016.
Full details are in the HMRC budget paper here: https://bit.ly/21vzxr1
This measure will neutralise the tax effect of hybrid mismatch arrangements in accordance with the recommendations of Action 2 of the G20/OECD Base Erosion and Profit Shifting (BEPS) project. In addition, the measure will also neutralise the tax effect of hybrid mismatch arrangements involving permanent establishments.
This measure seeks to tackle aggressive tax planning where, within a multinational group, either one party gets a tax deduction for a payment while the other party does not have a taxable receipt, or there is more than one tax deduction for the same expense.
The aim is to eliminate the unfair tax advantages which arise from the use of hybrid entities, hybrid instruments and permanent establishments, and thereby encourage businesses to adopt less complicated cross-border investment structures.
The measure applies to payments made on or after 1 January 2017 involving hybrid entities or instruments which give rise to a hybrid mismatch outcome.
Full details are in the HMRC budget paper here: https://bit.ly/1puxDeG
The UK Government introduced a new tax from 1st April 2015, the Diverted Profits Tax (DPT), aimed at multinational enterprises (MNEs) that use contrived arrangements or entities to bypass UK rules on Permanent Establishment and Transfer Pricing.
Where it applies, the normal rate of DPT is 25% of the diverted profit plus any “true-up interest”, and where the taxable diverted profits are ring fence profits in the oil & gas sector, DPT is charged at a rate of 55% plus interest. Read the rest of this entry »
I reported on 16.06.2015 that Deloitte’s 2015 Global Transfer Pricing Country Guide predicted intra-group procurement would be the subject of a coordinated HMRC challenge during 2015.
So I thought it might be useful to do a note on Procurement Operating Companies (POCs). Read the rest of this entry »
Many non-EU companies seeking to expand into Europe will start with a presence in the UK due to language and cultural connections, the UK’s legal framework and access to capital markets.
What are the potential UK tax implications from such a presence? Read the rest of this entry »