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UK's Tax Roadmap Includes EC's Anti Avoidance Proposals

by Jason Gorringe,, London

22 March 2016

The UK has published, alongside its 2016 Budget, a business tax roadmap setting out a slew of measures aimed at tackling tax avoidance and aggressive tax planning arrangements.

The roadmap includes at least two of the proposals contained in the European Commission's Anti Tax Avoidance Directive, which was presented in January 2016, namely, a framework to tackle hybrid mismatch arrangements and measures restricting the deductibility of corporate interest expenses. Additionally, the roadmap includes specific changes to strengthen the UK's withholding tax regime on royalty payments.

The roadmap states that the Government will introduce, from April 2017, a fixed ratio rule to restrict interest deductibility for the largest companies to 30 percent of UK earnings, targeting the measure by introducing a group ratio rule, an exemption for public benefit infrastructure, and a GBP2m de minimis threshold.

Next, the roadmap includes plans to eliminate the tax advantage arising from the use of hybrid mismatch arrangements involving permanent establishments (PEs). The measure is targeted at complex structures that allow some multinational corporations to avoid paying any tax anywhere, or to deduct the same expenses in more than one country.

Finally, the roadmap states that the Government would seek to extend the withholding tax rights so that payments for the use of intangible assets such as trademarks and brand names made to overseas persons will be subject to withholding tax. Alongside this, the Government would introduce a domestic law treaty abuse rule to ensure that payments cannot be diverted through conduit countries with which the UK has a tax treaty; and apply withholding tax on royalty payments that are connected with the activities of UK PEs of overseas companies.

Delivering his Budget Statement on March 16, Chancellor George Osborne noted that the roadmap "will deliver a low tax regime that will attract the multinational businesses we want to see in Britain, but ensure that they pay taxes here too. And it will level the playing field, which has been tilted against our small firms. The approach we take is guided by the best practice set out by the OECD, work which Britain called for, Britain paid for, and Britain will be among the very first to implement."

TAGS: compliance | tax | investment | business | European Commission | tax compliance | tax avoidance | interest | law | Organisation for Economic Co-operation and Development (OECD) | United Kingdom | enforcement | tax authority | agreements | multinationals | legislation | tax planning | transfer pricing | withholding tax | HM Revenue and Customs (HMRC) | G20 | tax reform | HM Revenue and Customs (HMRC) | trade | European Union (EU) | Europe | BEPS

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