The following government amendments were passed in the House of Commons on 18 April 2023 at Committee of the Whole House stage:
R&D tax relief schemes:
Sch 1 (govt amendment 14): this amendment updates CTA 2009 s 1057 to allow a company to make a valid R&D claim where it has transferred its trade to another group member and, as a result of that transfer, would not otherwise satisfy the requirement to be a going concern.
Multinational top-up tax:
clause 174 (govt amendment 12): removes Step 4 from the calculation of covered taxes;
clause 223 (govt amendment 13): prevents adjustments being made to the covered tax balance of an investment entity in relation to amounts of controlled foreign company tax allocated to the entity (to avoid the same adjustments being effectively made twice);
Sch 16 (govt amendments 15 to 19): this group of amendments aims to ensure that the anti-avoidance provisions in relation to intra-group transfers apply to all transfers from transferors until they are fully subject to the Pillar Two rules; and
Sch 16 (govt amendment 20): clarifies that, in determining whether the transitional safe harbour provisions apply for the purposes of multinational top-up tax, revenue and profits are to be as stated in a country-by-country report, or adjusted as if they were included in such a report.
As usual, the Treasury has published Explanatory Notes for each of the government amendments.
In response to publication of Finance (No 2) Bill 2023, the CIOT and ATT have published discussion papers on the following:
Full expensing: the new measures are generally welcome, but concerns remain that the relief is time limited, restricted to plant and machinery and available only to companies. The CIOT response also highlights the challenges for business of frequent changes to the capital allowances regime. The ATT has also submitted a response, with a focus on smaller businesses.
R&D tax reliefs:concerns around advance notification of claims and the additional information requirements have not been addressed, and the CIOT again notes how ‘constant changes will discourage marginal investment’. The power for HMRC to remove an R&D claim could also be more narrowly targeted, says the Institute. The ATT has also responded along similar lines.
Global minimum corporate tax rate:the CIOT highlights an interesting point: by including the top-up tax legislation as separate rules (effectively two new taxes) alongside existing corporation tax law, the UK can clearly demonstrate that it is applying the Pillar 2 rules, potentially avoiding the problem of other jurisdictions imposing their own top-up tax on companies that otherwise would be taxed in the UK. The institute also questions progress of negotiations on Pillar 1, particularly given potential retaliatory action from the US if the UK’s digital services tax remains in place.
Trustees and LLPs should be included in the changes, says the CIOT, to remove a potential avoidance opportunity. The meaning of share ownership should be clarified, to reflect beneficial ownership (or otherwise, if that was not the intention). Practical implications for non-residents should be considered (e.g. if someone is non-resident at the relevant time, how are they supposed to know they need to make an election?).
The CIOT, ATT and other professional bodies have written to the Treasury, setting out a number of recommendations for the government to ‘demonstrate its commitment to tax simplification’.
The following government amendments were passed in the House of Commons on 18 April 2023 at Committee of the Whole House stage:
R&D tax relief schemes:
Sch 1 (govt amendment 14): this amendment updates CTA 2009 s 1057 to allow a company to make a valid R&D claim where it has transferred its trade to another group member and, as a result of that transfer, would not otherwise satisfy the requirement to be a going concern.
Multinational top-up tax:
clause 174 (govt amendment 12): removes Step 4 from the calculation of covered taxes;
clause 223 (govt amendment 13): prevents adjustments being made to the covered tax balance of an investment entity in relation to amounts of controlled foreign company tax allocated to the entity (to avoid the same adjustments being effectively made twice);
Sch 16 (govt amendments 15 to 19): this group of amendments aims to ensure that the anti-avoidance provisions in relation to intra-group transfers apply to all transfers from transferors until they are fully subject to the Pillar Two rules; and
Sch 16 (govt amendment 20): clarifies that, in determining whether the transitional safe harbour provisions apply for the purposes of multinational top-up tax, revenue and profits are to be as stated in a country-by-country report, or adjusted as if they were included in such a report.
As usual, the Treasury has published Explanatory Notes for each of the government amendments.
In response to publication of Finance (No 2) Bill 2023, the CIOT and ATT have published discussion papers on the following:
Full expensing: the new measures are generally welcome, but concerns remain that the relief is time limited, restricted to plant and machinery and available only to companies. The CIOT response also highlights the challenges for business of frequent changes to the capital allowances regime. The ATT has also submitted a response, with a focus on smaller businesses.
R&D tax reliefs:concerns around advance notification of claims and the additional information requirements have not been addressed, and the CIOT again notes how ‘constant changes will discourage marginal investment’. The power for HMRC to remove an R&D claim could also be more narrowly targeted, says the Institute. The ATT has also responded along similar lines.
Global minimum corporate tax rate:the CIOT highlights an interesting point: by including the top-up tax legislation as separate rules (effectively two new taxes) alongside existing corporation tax law, the UK can clearly demonstrate that it is applying the Pillar 2 rules, potentially avoiding the problem of other jurisdictions imposing their own top-up tax on companies that otherwise would be taxed in the UK. The institute also questions progress of negotiations on Pillar 1, particularly given potential retaliatory action from the US if the UK’s digital services tax remains in place.
Trustees and LLPs should be included in the changes, says the CIOT, to remove a potential avoidance opportunity. The meaning of share ownership should be clarified, to reflect beneficial ownership (or otherwise, if that was not the intention). Practical implications for non-residents should be considered (e.g. if someone is non-resident at the relevant time, how are they supposed to know they need to make an election?).
The CIOT, ATT and other professional bodies have written to the Treasury, setting out a number of recommendations for the government to ‘demonstrate its commitment to tax simplification’.
