I’m addicted to variety, so I’m pleased to say it’s a glorious mixture of business tax issues, including the somewhat esoteric – such as financial products that test the boundaries between insurance, on the one hand, and a guarantee or debt finance, on the other. The rigidities of the ‘bond fund’ rules, insurance cover for identified tax risks, and the scope of the 2013 relaxation of the corporate residency rule for funds also feature, as well as ‘bread and butter’ advice for private equity, M&A, property joint venture, finance and employee equity award transactions.
Looking back on your career to date, what key lesson have you learnt?
Don’t let yourself be constricted by a (non-tax specialist) client/colleague’s formulation of the question. Insist on understanding the commercial reasons for a structure or transaction: they are often the key to identifying and solving the tax issues.
What is your view of the chancellor’s plans to make London a global centre for insurance-linked securities?
It is a very welcome initiative, especially given the London insurance market and my own firm’s expertise in this area. The government needs to come up with a prompt and straightforward solution and not repeat the wasted effort that was put into the under-used (maybe never used) insurance special purpose vehicle tax regulations. They arrived only after the catastrophe bond industry had familiarised itself with other jurisdictions.
What’s your interpretation of HMRC’s brief on Anson?
All that remains of HMRC’s previous guidance seems to be that relating to the ability of an LLC member’s interest to constitute ‘shares’. Otherwise, for newly formed Delaware LLCs and presumably other foreign entities, HMRC inevitably abandoned its previous attempt to classify certain entities as generally ‘opaque’ or ‘transparent’. We are now left with a case by case approach, using the Supreme Court’s non-user friendly test of entitlement to profits as they arise. The UK’s ‘unprincipled’ approach to entity classification will have some unexpected and unpleasant tax consequences: for example, a Delaware LLC can now be both tax transparent and still a company. It seems that only legislation can sort out the mess by introducing a rational and comprehensive set of rules.
If you could make one change to UK tax law or practice, what would it be?
HMRC published guidance typically includes illustrative examples as to how the law is intended to apply. However, the factual situations described are often too naïve and one-sided to be of practical help; the diverted profits tax (DPT) guidance is a recent example. Putting aside the fact that the DPT regime itself may be superfluous in some respects, several of the case studies are capable of being challenged under the ‘old’ permanent establishment test, without any need to invoke DPT. It would be useful to see some studies involve a weighing-up of factors which do not all point in the same direction. This is all the more relevant when the onus is on the taxpayer to self-assess or, in the case of DPT, self-report. It should not be too demanding on HMRC’s powers of imagination because taxpayer requests for clearances could provide samples of more nuanced sets of facts. In effect, some rulings would be shared in an anonymised form.
How does BEPS affect your clients?
It is a major concern for our international client base how profits are allocated between tax jurisdictions, particularly if, as seems likely, the US is not an enthusiastic early adopter of the BEPS proposals. Instead of continuing to try and capture the taxable profits of companies, on a par with natural persons, it is a pity that the project did not take the opportunity to consider a radical approach, focusing on the real stakeholders, namely the owners, employees and customers. Companies are merely the creature of company and contract law, after all, so achieving the ‘right’ tax outcome in relation to their affairs can be an elusive goal.
I’m addicted to variety, so I’m pleased to say it’s a glorious mixture of business tax issues, including the somewhat esoteric – such as financial products that test the boundaries between insurance, on the one hand, and a guarantee or debt finance, on the other. The rigidities of the ‘bond fund’ rules, insurance cover for identified tax risks, and the scope of the 2013 relaxation of the corporate residency rule for funds also feature, as well as ‘bread and butter’ advice for private equity, M&A, property joint venture, finance and employee equity award transactions.
Looking back on your career to date, what key lesson have you learnt?
Don’t let yourself be constricted by a (non-tax specialist) client/colleague’s formulation of the question. Insist on understanding the commercial reasons for a structure or transaction: they are often the key to identifying and solving the tax issues.
What is your view of the chancellor’s plans to make London a global centre for insurance-linked securities?
It is a very welcome initiative, especially given the London insurance market and my own firm’s expertise in this area. The government needs to come up with a prompt and straightforward solution and not repeat the wasted effort that was put into the under-used (maybe never used) insurance special purpose vehicle tax regulations. They arrived only after the catastrophe bond industry had familiarised itself with other jurisdictions.
What’s your interpretation of HMRC’s brief on Anson?
All that remains of HMRC’s previous guidance seems to be that relating to the ability of an LLC member’s interest to constitute ‘shares’. Otherwise, for newly formed Delaware LLCs and presumably other foreign entities, HMRC inevitably abandoned its previous attempt to classify certain entities as generally ‘opaque’ or ‘transparent’. We are now left with a case by case approach, using the Supreme Court’s non-user friendly test of entitlement to profits as they arise. The UK’s ‘unprincipled’ approach to entity classification will have some unexpected and unpleasant tax consequences: for example, a Delaware LLC can now be both tax transparent and still a company. It seems that only legislation can sort out the mess by introducing a rational and comprehensive set of rules.
If you could make one change to UK tax law or practice, what would it be?
HMRC published guidance typically includes illustrative examples as to how the law is intended to apply. However, the factual situations described are often too naïve and one-sided to be of practical help; the diverted profits tax (DPT) guidance is a recent example. Putting aside the fact that the DPT regime itself may be superfluous in some respects, several of the case studies are capable of being challenged under the ‘old’ permanent establishment test, without any need to invoke DPT. It would be useful to see some studies involve a weighing-up of factors which do not all point in the same direction. This is all the more relevant when the onus is on the taxpayer to self-assess or, in the case of DPT, self-report. It should not be too demanding on HMRC’s powers of imagination because taxpayer requests for clearances could provide samples of more nuanced sets of facts. In effect, some rulings would be shared in an anonymised form.
How does BEPS affect your clients?
It is a major concern for our international client base how profits are allocated between tax jurisdictions, particularly if, as seems likely, the US is not an enthusiastic early adopter of the BEPS proposals. Instead of continuing to try and capture the taxable profits of companies, on a par with natural persons, it is a pity that the project did not take the opportunity to consider a radical approach, focusing on the real stakeholders, namely the owners, employees and customers. Companies are merely the creature of company and contract law, after all, so achieving the ‘right’ tax outcome in relation to their affairs can be an elusive goal.
