A few changes will be made to the UK’s controversial diverted profits tax in the final version of the legislation, set to be introduced next week, according UK budget documents released March 18. Proposed legislation granting HMRC power to issue regulations on country-by-country reporting requirements for MNEs will be also be introduced next week, without change from earlier proposals.
The proposed 25 percent tax on diverted profits, announced in the UK Autumn statement 2014 and released as a draft law December 10, 2014, targets large MNEs that exploit permanent establishment rules or that reduce their tax liability through transactions or entities that lack economic substance.
In his budget speech, UK Treasury chief George Osborne confirmed that the legislation will be introduced in Finance Bill 2015 on March 24, and that it will be proposed to go into effect, as planned, on April 1.
“Let the message go out that our toleration for those who will not pay their taxes will now come to an end,” Osborne said.
According to budget documents, modifications will be made to the draft version of the law to narrow notification requirements. Clarifications will also be made to rules for giving credit for tax paid, to the operation of the conditions under which a charge can arise, and to specific exclusions. The application of the tax to companies subject to the oil and gas regime will also be revised, budget documents said.
In January Mike Williams, Director, Business and International Tax, HM Treasury said the goverment was exploring ways to modify rules that require a company to notify HMRC within three months after the end of an accounting period if it potentially owes diverted profits tax for the period. “There is no advantage in businesses putting together a lot of information which is sent to HMRC, [and] for HMRC look at [the information] and then decide there isn’t an issue,” he said.
Williams also said the goverment believed the exception to the diverted profit tax for loan relationships was probably drafted too narrowly.
Finance Bill 2015 will also include legislation to adopt country-by-country reporting consistent with OECD standards. Either no changes or only minor changes will be made from earlier proposals, the budget documents said.
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