Since taking up the role of head of international tax at Johnston Carmichael in January this year, my main area of focus has been helping clients with the tax compliance and risks surrounding their expansion overseas. We are also carrying out a lot of transfer pricing studies. Although the majority of our clients fall within the SME exemption for UK tax purposes, the territories into which they are expanding do not have similar exemptions, and therefore their cross-border transactions need to be priced on an arm’s length basis.
What do you know now that you wish you’d known at the start of your career?
That even those more senior who may appear to know everything, actually don’t. Tax is a constantly changing area and there is always so much more to learn. Consulting with colleagues and other advisers is so important when tackling anything difficult, and it shouldn’t be seen as a weakness.
Are there any new rules that are causing a particular problem?
The recent HMRC consultation on transfer pricing documentation is both interesting and concerning. The proposal that large businesses may be required to file details of all related party transactions alongside their tax returns would potentially be an enormous compliance burden and a costly affair as not all businesses will have the internal reporting systems to make this an easy task. If these proposals are adopted, it is likely that all transfer pricing advisers will be extremely busy for the foreseeable future!
Has a recent tax case caught your eye?
With more employees working from home than ever before and tech companies in particular looking outside the UK for the skilled staff they need, a recent Danish tax case on permanent establishment (PE) involving a German company could be significant for international businesses’ future contracts with local representatives.
In that case, a German company selling goods online sought to establish a market presence for its products in Denmark. It employed a Danish national to carry out a number of tasks for and on behalf of the German company in Denmark. The employee’s base was his own home (and a home office agreement was in place between the German company and the Danish employee). The German company had no other office or branch location in Denmark. The employee performed all the ‘core’ business activities from his home, with occasional trips to the head office in Germany.
The Danish Tax Board (DTB) placed heavy reliance on the OECD commentary on PE in arriving at its decision. In particular, it focused on the conditions that must be met in order for a home office to create a PE. The most notable finding is in respect of the criteria of ‘a place of business’. The Danish Tax Board’s view seems to have been that, since the use of the employee’s home office was not random or irregular and the office was meant to be used for a continuous period of time, the home office could be considered to be a place of business.
Extreme care now needs to be taken when any business recruits an overseas employee on a home working contract if there is any risk that the employee’s duties could be considered anything more than auxiliary and preparatory.
If you could make one change to tax, what would it be?
I would like to see more countries adopt a de-minimis for transfer pricing like the SME exemption applied in the UK. For small UK businesses starting out overseas, the need to be transfer pricing compliant in other jurisdictions is often a difficulty. The cost and complexity of carrying out appropriate benchmarking exercises in a business which may still be establishing itself is disproportionate to the size of the business.
Finally, you might not know this about me but…
During the last year, my daughter and I have taken up horse riding and we own two horses. I spend much of my spare time at the stables. Riding and taking care of the horses is a great stress reliever and during lockdown, whilst working from home, it has been welcome time away from the house.
Since taking up the role of head of international tax at Johnston Carmichael in January this year, my main area of focus has been helping clients with the tax compliance and risks surrounding their expansion overseas. We are also carrying out a lot of transfer pricing studies. Although the majority of our clients fall within the SME exemption for UK tax purposes, the territories into which they are expanding do not have similar exemptions, and therefore their cross-border transactions need to be priced on an arm’s length basis.
What do you know now that you wish you’d known at the start of your career?
That even those more senior who may appear to know everything, actually don’t. Tax is a constantly changing area and there is always so much more to learn. Consulting with colleagues and other advisers is so important when tackling anything difficult, and it shouldn’t be seen as a weakness.
Are there any new rules that are causing a particular problem?
The recent HMRC consultation on transfer pricing documentation is both interesting and concerning. The proposal that large businesses may be required to file details of all related party transactions alongside their tax returns would potentially be an enormous compliance burden and a costly affair as not all businesses will have the internal reporting systems to make this an easy task. If these proposals are adopted, it is likely that all transfer pricing advisers will be extremely busy for the foreseeable future!
Has a recent tax case caught your eye?
With more employees working from home than ever before and tech companies in particular looking outside the UK for the skilled staff they need, a recent Danish tax case on permanent establishment (PE) involving a German company could be significant for international businesses’ future contracts with local representatives.
In that case, a German company selling goods online sought to establish a market presence for its products in Denmark. It employed a Danish national to carry out a number of tasks for and on behalf of the German company in Denmark. The employee’s base was his own home (and a home office agreement was in place between the German company and the Danish employee). The German company had no other office or branch location in Denmark. The employee performed all the ‘core’ business activities from his home, with occasional trips to the head office in Germany.
The Danish Tax Board (DTB) placed heavy reliance on the OECD commentary on PE in arriving at its decision. In particular, it focused on the conditions that must be met in order for a home office to create a PE. The most notable finding is in respect of the criteria of ‘a place of business’. The Danish Tax Board’s view seems to have been that, since the use of the employee’s home office was not random or irregular and the office was meant to be used for a continuous period of time, the home office could be considered to be a place of business.
Extreme care now needs to be taken when any business recruits an overseas employee on a home working contract if there is any risk that the employee’s duties could be considered anything more than auxiliary and preparatory.
If you could make one change to tax, what would it be?
I would like to see more countries adopt a de-minimis for transfer pricing like the SME exemption applied in the UK. For small UK businesses starting out overseas, the need to be transfer pricing compliant in other jurisdictions is often a difficulty. The cost and complexity of carrying out appropriate benchmarking exercises in a business which may still be establishing itself is disproportionate to the size of the business.
Finally, you might not know this about me but…
During the last year, my daughter and I have taken up horse riding and we own two horses. I spend much of my spare time at the stables. Riding and taking care of the horses is a great stress reliever and during lockdown, whilst working from home, it has been welcome time away from the house.
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