A broad mix of corporate transactions, ranging from M&A and financing to IPOs and group reorganisations. People assume that Cleary’s large US footprint means most of our work is transatlantic, but our current slate includes domestic UK deals and a string of multi-jurisdictional transactions across South America, Asia, Africa and the Middle East, and that is fairly typical for us.
An encouraging theme we have seen is for non-UK groups (outside the financial sector) to decide to maintain, or even shift to establishing, a UK presence, notwithstanding Brexit. Our holding company regime has been a key feature of this. Although the UK was already attractive, the position has been supported further by the recent relaxation of the conditions for the substantial shareholding exemption. I have always been wary in advising clients that they can plan to rely on the SSE – there are numerous traps for the unwary, and the conditions can’t be properly tested until the time of the relevant share disposal – but the changes brought in last year often make the analysis much more simple.
If you could make one change to a tax law or practice, what would it be?
I would overhaul UK stamp duty, at a minimum adopting the July 2017 recommendations of the Office of Tax Simplification. Of the various problems with today’s outdated system, a lot of time and effort could be saved by more clearly limiting the jurisdictional scope to UK securities, and by streamlining the processes for obtaining stamping and claiming reliefs. I have seen numerous occasions of needless additional complexity (using transfers of equitable ownership and the like) to what ought to be straightforward share disposals, in order to address time delays in transferring legal title.
Is there anything you know now that you wish you’d known at the start of your career?
Lawyers don’t need to be accountants, but it makes a huge difference to your effectiveness as a lawyer (whether in tax or otherwise) to have a good working understanding of financial statements and the accounting impact of the most common corporate transactions.
Are there any new rules that are causing a particular problem?
US tax reform is causing a variety of problems – not only for US taxpayers but for any taxpayers or groups with current or potential US operations or investments. We are beginning now to see some real difficulties in practice with some of the unintended consequences of the hastily enacted rules. One example is a new controlled foreign company ‘downward attribution’ rule which can easily apply in unintended fashion where two private equity funds make a joint venture investment in a non-US portfolio company. The non-US portfolio company can in some cases be treated under the new rules as a CFC of US investors in the first private equity fund simply because the second private equity fund has a large investment in an unrelated US company.
Has a recent case caught your eye?
A large part of my job is the allocation of tax risks identified in the course of transactions – most notably through negotiating contractual warranties and indemnities on corporate acquisitions. There have been a few cases in recent years on the contract law analysis of warranty and indemnity claims, and the Court of Appeal decision in Teoco UK Ltd v Aircom Jersey 4 Ltd and another [2018] EWCA Civ 23 is a recent one which stands out in the context of tax claims. The decision has already been covered in this journal, but I think it worth mentioning again how it highlights the importance both of bringing claims in the right way (the case was about complying with contractual notice requirements) and of anticipatin g potential issues when drafting the relevant provisions (such as conduct of claims clauses).
What do you think is the next hot topic in international taxation?
Undoubtedly, this will be the taxation of the digital economy. The main challenge will be to find an appropriate and sufficiently widely agreed method of taxing profits and value created by online businesses. A related but somewhat different challenge is the impact of cryptocurrencies. There are technical questions which tax authorities (including HMRC) have begun to think about (for example, whether these should be treated as ‘currencies’, whether transactions are trading or investment in nature, and how VAT should be applied). But practical implications could be equally significant. In addition to difficulties related to information reporting and the risk of tax evasion, there also will be potential opportunities, including the possibility of creative solutions to tax assessment and collection.
Finally, you might not know this about me but…
I spent over 20 years playing water polo on a near daily basis – through school, university and beyond. But ageing and an unsuccessful attempt to establish a legal league now keep me out of the pool more than I would like.
A broad mix of corporate transactions, ranging from M&A and financing to IPOs and group reorganisations. People assume that Cleary’s large US footprint means most of our work is transatlantic, but our current slate includes domestic UK deals and a string of multi-jurisdictional transactions across South America, Asia, Africa and the Middle East, and that is fairly typical for us.
An encouraging theme we have seen is for non-UK groups (outside the financial sector) to decide to maintain, or even shift to establishing, a UK presence, notwithstanding Brexit. Our holding company regime has been a key feature of this. Although the UK was already attractive, the position has been supported further by the recent relaxation of the conditions for the substantial shareholding exemption. I have always been wary in advising clients that they can plan to rely on the SSE – there are numerous traps for the unwary, and the conditions can’t be properly tested until the time of the relevant share disposal – but the changes brought in last year often make the analysis much more simple.
If you could make one change to a tax law or practice, what would it be?
I would overhaul UK stamp duty, at a minimum adopting the July 2017 recommendations of the Office of Tax Simplification. Of the various problems with today’s outdated system, a lot of time and effort could be saved by more clearly limiting the jurisdictional scope to UK securities, and by streamlining the processes for obtaining stamping and claiming reliefs. I have seen numerous occasions of needless additional complexity (using transfers of equitable ownership and the like) to what ought to be straightforward share disposals, in order to address time delays in transferring legal title.
Is there anything you know now that you wish you’d known at the start of your career?
Lawyers don’t need to be accountants, but it makes a huge difference to your effectiveness as a lawyer (whether in tax or otherwise) to have a good working understanding of financial statements and the accounting impact of the most common corporate transactions.
Are there any new rules that are causing a particular problem?
US tax reform is causing a variety of problems – not only for US taxpayers but for any taxpayers or groups with current or potential US operations or investments. We are beginning now to see some real difficulties in practice with some of the unintended consequences of the hastily enacted rules. One example is a new controlled foreign company ‘downward attribution’ rule which can easily apply in unintended fashion where two private equity funds make a joint venture investment in a non-US portfolio company. The non-US portfolio company can in some cases be treated under the new rules as a CFC of US investors in the first private equity fund simply because the second private equity fund has a large investment in an unrelated US company.
Has a recent case caught your eye?
A large part of my job is the allocation of tax risks identified in the course of transactions – most notably through negotiating contractual warranties and indemnities on corporate acquisitions. There have been a few cases in recent years on the contract law analysis of warranty and indemnity claims, and the Court of Appeal decision in Teoco UK Ltd v Aircom Jersey 4 Ltd and another [2018] EWCA Civ 23 is a recent one which stands out in the context of tax claims. The decision has already been covered in this journal, but I think it worth mentioning again how it highlights the importance both of bringing claims in the right way (the case was about complying with contractual notice requirements) and of anticipatin g potential issues when drafting the relevant provisions (such as conduct of claims clauses).
What do you think is the next hot topic in international taxation?
Undoubtedly, this will be the taxation of the digital economy. The main challenge will be to find an appropriate and sufficiently widely agreed method of taxing profits and value created by online businesses. A related but somewhat different challenge is the impact of cryptocurrencies. There are technical questions which tax authorities (including HMRC) have begun to think about (for example, whether these should be treated as ‘currencies’, whether transactions are trading or investment in nature, and how VAT should be applied). But practical implications could be equally significant. In addition to difficulties related to information reporting and the risk of tax evasion, there also will be potential opportunities, including the possibility of creative solutions to tax assessment and collection.
Finally, you might not know this about me but…
I spent over 20 years playing water polo on a near daily basis – through school, university and beyond. But ageing and an unsuccessful attempt to establish a legal league now keep me out of the pool more than I would like.
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