Market leading insight for tax experts
View online issue

Autumn Statement 2016: The impact on multinationals

printer Mail
‘I will not make significant changes twice a year just for the sake of it,’ said the chancellor as he announced the abolishment of the Autumn Statement and the move to an Autumn Budget with a Spring Statement (responding to OBR forecasts but not a ‘major fiscal event’) from 2018. Multinationals yearning for a period of tax stability after years of significant changes (Finance Act 2016 alone weighing in at a hefty 649 pages) might well suggest that no significant change should ever be made ‘just for the sake of it’. 
It was confirmed that the UK would be sticking to the current plan of cutting the corporation tax rate to 17% by 2020; there had been speculation that the chancellor would try to beat President-elect Trump to 15%. He also confirmed that the government would be sticking to the business tax roadmap because he ‘know[s] how much business values certainty and stability’. He would do well to remember that the certainty and stability businesses value goes to the tax base as much as, if not more than, the headline tax rate which is applied to it.
Once again, the multinational tax base is to be ramped up from April 2017, the latest increase coming in the form of restrictions on the use of interest relief (net interest expense capped at 30% of UK taxable earnings, subject to a group ratio test) and carried-forward losses (no more than 50% of profits can be sheltered with a carried-forward loss unless you are a bank with pre-April 2015 losses in which case the cap is 25%). Both measures were trailed in March and are projected to raise £5bn. No doubt both measures will also increase the compliance burden and uncertainty for many multinationals as well as their UK tax base. This is unlikely to be popular, but it is no real surprise.
The announcement of those measures was followed by an odd looking statement that the government is considering bringing non-UK resident companies receiving taxable income from the UK into the corporation tax regime and will consult on that at Budget 2017. It will be interesting to see what the government has in mind here and how it proposes to go about addressing it, but the implications could potentially be far reaching: every company in the world receiving UK source interest within the charge to UK corporation tax, anyone? However, it must surely be the case that what the government has in mind is that where a non-UK resident company has UK source income on which it is pays tax, for example UK property rental income, ensuring that it is required to use the same rules to calculate its taxable income for those purposes that a company subject to UK corporation tax would, including the new interest expense and loss relief restrictions. And that it does not intend to change the effective territorial scope of the taxation of items, such as UK source interest, by effectively removing the cap for non-resident companies to UK tax deducted at source. But this is definitely one to keep an eye on.
Multinationals who have seen HMRC taking an increasingly aggressive line in relation to transfer pricing, controlled foreign companies and diverted profits tax, often launching uncoordinated and onerous enquiries into all three using separate teams when one would surely be more efficient for all concerned may be dismayed by the revelation in the small print that HMRC will have an additional resource of up to 200 full-time equivalent staff from 2018/19 onwards ‘with the aim of capitalising on recent strengthening of HMRC’s powers with supporting compliance activity’. Similarly, the new ability to close individual matters under enquiry using a partial closure notice sounds like a good thing, providing certainty, until you realise its sole justification is to improve (i.e. accelerate) HMRC’s cashflow.
Any good news? Not if you are an insurer, with insurance premium tax going up from 10% to 12% (the new announcement predicted to raise the largest sum). Although no doubt that will just be passed along to customers. However, it would seem there is light at the end of the tunnel for banks and their extended stay on the naughty step may be coming to an end. Confirming the already announced reduction in scope of the bank levy (bank levy receipts are predicted to fall from £3.4bn in 2015/16 to £1.3bn in 2021/22), the government states that it ‘will continue to consider the balance between revenue and competitiveness with regard to bank taxation, taking into account the implications of the UK leaving the EU’. A last minute reprieve for the golden goose?
A final welcome change is some simplification to the substantial shareholdings requirement. The investing company requirement is going from April 2017. That will not only be welcome in situations where it is known the investing company requirement will not be met but also in situations where the target being sold is obviously trading and the onerous requirement is confirming that the retained group is. It should make confirming whether the exemption is available much more straightforward. There is also the promise of a ‘more comprehensive exemption for companies owned by qualifying institutional investors’ to come.