Several private equity transactions, interspersed with a couple of financing transactions, some advice to fund investors and a couple of more esoteric projects to keep life interesting. I am lucky to have a good variety of work. In rare quiet moments between transactions I am focusing on what UK real estate investment transaction structures will look like next year.
If you could make one change to tax law or practice, what would it be?
I would abolish UK withholding tax on interest. The tax take must be tiny compared to the costs incurred in managing it. If that were to be considered a step too far I would introduce a corresponding adjustment provision for interest which is non-deductible under the corporate interest restriction rules.
What do you know now that you wish you’d known at the start of your career?
Manufactured overseas dividends! It would have been useful to know that the MOD regs were going to be repealed, and that even before that happened the world would move on and clients would no longer be doing transactions involving MODs, and, finally, that after that happened, that a court would decide that the MOD regs didn’t mean what I (or HMRC guidance) thought they meant. Not only would it have saved me some hours of earnest puzzling but I would also have known that the demand for tax advice, the rules themselves, and their interpretation are all constantly changing.
Are there any new rules that are causing a particular problem?
I’ve alluded to the new rules bringing non-residents holding UK real estate into the charge to UK capital gains tax already. These look set to cause significant problems for non-residents who have acquired real estate under the existing rules and often hold it through chains of opaque companies. The risk is a UK tax charge on a disposal halfway up the chain and another charge on the ultimate investor(s) in their local jurisdiction when returns are paid up the structure (meaning that the same gain would be taxed twice economically). It seems unlikely credit would be available. Similar issues arise for exempt investors who may lose the benefit of their exemption on such a disposal. In the context of transactions involving collective investment vehicles, some investors may be able to benefit from the elections for transparency or exemption that are set out in the recently revised draft legislation, provided the parties are prepared to comply with reporting and filing obligations. For other investors, some restructuring may be desirable before the rules come in in April and we may see more complicated structures for new transactions. In future, there is more likely to be more conflict between the various parties to transactions as to the optimum tax structure.
Is there a recent tax case which has caught your eye?
I was heartened to see the Upper Tribunal take the side of the taxpayer in Reeves v HMRC. It is easy to feel that detailed conditions of legislation will be held against a taxpayer whereas HMRC will be given wide scope to disregard the detailed conditions and make arguments based on purpose. The provision in question appeared to prevent Mr Reeves claiming holdover relief on the basis that his wife’s ‘control’ of the transferee company caused one of the conditions to be failed, yet she only obtained her control by being attributed his shares (she did not hold any herself). If anything, the trend for extremely wide attribution provisions is expanding – the corporate interest restriction rules are a good example – so it is nice to know that there is some basis for taking a common sense approach. This case also illustrates the difficulty behind the idea of moving towards a fairness or principles-based approach to drafting tax law. There is no consensus across the decisions as to whether Mr Reeves is the lucky beneficiary of a loophole or, very nearly, the unlucky victim of a bear trap. Without clear, if sometimes arbitrary, boundaries in tax law the courts would be overwhelmed by the kind of grey area situation which came up here.
Finally, you might not know this about me but…
I’ve recently had to give up my weekend job as a mini-rugby coach as both my sons have opted to play football instead. One day they’ll see the light. In the meantime, I am retooling as a mini-football referee…
Several private equity transactions, interspersed with a couple of financing transactions, some advice to fund investors and a couple of more esoteric projects to keep life interesting. I am lucky to have a good variety of work. In rare quiet moments between transactions I am focusing on what UK real estate investment transaction structures will look like next year.
If you could make one change to tax law or practice, what would it be?
I would abolish UK withholding tax on interest. The tax take must be tiny compared to the costs incurred in managing it. If that were to be considered a step too far I would introduce a corresponding adjustment provision for interest which is non-deductible under the corporate interest restriction rules.
What do you know now that you wish you’d known at the start of your career?
Manufactured overseas dividends! It would have been useful to know that the MOD regs were going to be repealed, and that even before that happened the world would move on and clients would no longer be doing transactions involving MODs, and, finally, that after that happened, that a court would decide that the MOD regs didn’t mean what I (or HMRC guidance) thought they meant. Not only would it have saved me some hours of earnest puzzling but I would also have known that the demand for tax advice, the rules themselves, and their interpretation are all constantly changing.
Are there any new rules that are causing a particular problem?
I’ve alluded to the new rules bringing non-residents holding UK real estate into the charge to UK capital gains tax already. These look set to cause significant problems for non-residents who have acquired real estate under the existing rules and often hold it through chains of opaque companies. The risk is a UK tax charge on a disposal halfway up the chain and another charge on the ultimate investor(s) in their local jurisdiction when returns are paid up the structure (meaning that the same gain would be taxed twice economically). It seems unlikely credit would be available. Similar issues arise for exempt investors who may lose the benefit of their exemption on such a disposal. In the context of transactions involving collective investment vehicles, some investors may be able to benefit from the elections for transparency or exemption that are set out in the recently revised draft legislation, provided the parties are prepared to comply with reporting and filing obligations. For other investors, some restructuring may be desirable before the rules come in in April and we may see more complicated structures for new transactions. In future, there is more likely to be more conflict between the various parties to transactions as to the optimum tax structure.
Is there a recent tax case which has caught your eye?
I was heartened to see the Upper Tribunal take the side of the taxpayer in Reeves v HMRC. It is easy to feel that detailed conditions of legislation will be held against a taxpayer whereas HMRC will be given wide scope to disregard the detailed conditions and make arguments based on purpose. The provision in question appeared to prevent Mr Reeves claiming holdover relief on the basis that his wife’s ‘control’ of the transferee company caused one of the conditions to be failed, yet she only obtained her control by being attributed his shares (she did not hold any herself). If anything, the trend for extremely wide attribution provisions is expanding – the corporate interest restriction rules are a good example – so it is nice to know that there is some basis for taking a common sense approach. This case also illustrates the difficulty behind the idea of moving towards a fairness or principles-based approach to drafting tax law. There is no consensus across the decisions as to whether Mr Reeves is the lucky beneficiary of a loophole or, very nearly, the unlucky victim of a bear trap. Without clear, if sometimes arbitrary, boundaries in tax law the courts would be overwhelmed by the kind of grey area situation which came up here.
Finally, you might not know this about me but…
I’ve recently had to give up my weekend job as a mini-rugby coach as both my sons have opted to play football instead. One day they’ll see the light. In the meantime, I am retooling as a mini-football referee…
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