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The tax agenda for July

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The OECD’s action plan on BEPS

Chris SangerThe OECD’s action plan of potential responses to base erosion and profit shifting (BEPS), due later this month, is probably the most eagerly anticipated OECD paper on taxation for some time. Rather than looking at a discrete part of the international tax architecture, it will represent the outcome of a comprehensive review of all the rules in a holistic manner.

Many developed countries agree that these issues are most effectively addressed via a multilateral approach. Hence the involvement of the OECD is welcome, particularly in light of its long history of providing a forum for countries to work together on complex issues, and of facilitating constructive engagement with business.

Coming at a period of intense scrutiny of the tax affairs of multinationals, it is hoped that the action plan will provide a basis for informed debate over the need and mechanisms for change. Judging from the evidence given by the OECD’s director Pascal Saint-Amans before the US House Ways and Means Committee, the action plan will provide plenty to consider, including:

  • recommendations on the design of new rules to address hybrid mismatches;
  • different approaches to tackle the use of excess interest expense;
  • means to better align taxation and the ‘substance of taxpayers’ value-creating activities’;
  • focus on developing tools that countries can use to address BEPS;
  • greater transparency of taxpayers to tax administrations; and
  • more effective cooperation among tax administrations.

This debate is important for far more than its technical merits. The role of tax treaties to eliminate double taxation is critically important in facilitating cross-border trade and investment. Given the implications for the global economy, multinational businesses, governments and the public share a common interest in ensuring the success of the OECD BEPS project.

Consultation on the code of practice for banks

David HarknessThe proposals for naming and shaming of ‘non-compliant’ banks involve no independent arbiter outside of HMRC, nor any right of the bank to put its case. Banks and their advisers should make appropriate representations to HMRC before the consultation period closes.

HMRC published a consultation document on The Code of Practice on Taxation for Banks on 31 May, with a closing date for comments of 16 August. The proposal does not change the wording of the existing code (available via, which HMRC states is intended to ensure that banks have a strong governance around tax, follow the spirit as well as the letter of tax law, and have an open relationship with HMRC.

If the wording of the code is not changing, why then is there a consultation? What is proposed is for legislation to provide HMRC with the legal basis to name and shame ‘non-compliant’ banks.

Superficially, the proposal is uncontroversial – after all if banks have signed up to a code, why should they not be subject to public ridicule if they fail to comply? But digging deeper raises some troubling issues. Does it sit well for a code to be described as ‘voluntary’ if a list is to be published of those banks which have and those which have not adopted it? More fundamentally, the process proposed for identifying those banks that are judged ‘non-compliant’ involves no independent arbiter outside of HMRC, nor any right of the bank to put its case. The only remedy for unwarranted publication of the name of a bank as non-compliant appears to be judicial review (after the event). Moreover, one of the indications that a bank is non-compliant is that the bank has entered into a transaction which has been referred to the GAAR advisory panel – even if the panel has not yet ruled that the transaction is abusive.

The commercial consequences of being named as non-compliant are clearly potentially very serious (loss of retail business, hit to share price). So serious in fact that judicial review after the event is unlikely to be an adequate remedy for a bank that is wrongly named. It is to be hoped that the consultation leads to changes to the proposals so that before a bank is named there is a proper inter partes hearing in front of an independent judge. That would be the least that is required by normal principles of fairness, justice and the rule of law.

Limits on deductions for loans against IHT

Christopher GrovesAny individual relying on debt to reduce a potential IHT bill should now review his affairs, in advance of new rules in the Finance Bill which are due to take effect from Royal Assent later this month.

In June 2010, the (then new) coalition government issued a policy document entitled Tax Policy Making: A New Approach. In this document, it committed to increased consultation for new tax legislation and this has led to the majority of significant new tax measures being published as consultation papers well in advance of the Finance Bill itself. However, some surprises are still saved for Budget day.

This year in the Budget the government announced new rules to limit the ability for deductions to be claimed against the value of estates on death for IHT purposes. These are set out in Sch 34 to the Finance Bill and are proposed to operate in three ways:

Where debts are not repaid on death, it will have to be demonstrated that there is a commercial reason for retaining the debt, not simply a desire to obtain a tax advantage. In this case a deduction will be denied unless the debt is repaid on or after death by the estate.

Where debts have been taken out directly or indirectly to acquire, maintain or enhance excluded property that is not subject to IHT, such debts will not be taken into account as deductions for IHT purposes on death, except where they exceed the value of the excluded property and do not have a tax avoidance motive.

Where debts have been taken out to acquire property that is relieved from IHT (such as business property, e.g. shares in trading companies, agricultural land or woodlands), these debts will also not be allowable against other non-relievable or relevant property. This measure will operate by reducing the value of the property, before the relevant relief is applied by the amount of the debt, thereby ensuring effectively that it cannot be set against other property in the estate.

The measures will take effect from Royal Assent. However, on 13 June 2013, David Gauke announced that the rules would be amended so that they would not apply to loans taken out before Royal Assent.

The continued inclusion of these measures in Finance Bill 2013 emphasises the government’s willingness to continue to introduce targeted anti-avoidance legislation where it feels it is required, notwithstanding the introduction of the GAAR and also to restrict consultation on measure where it feels to do so would in itself present opportunities for tax avoidance.

In practice, these rules are likely to have a considerable effect on the financing of businesses in future and also leave executors with considerable difficulties in managing the repayment of debts owed to estates and the payment of larger IHT bills. Any individual relying on debt to reduce a potential IHT bill will need to review their affairs.

Agent funded discounts: AG’s opinion in Ibero Tours

Daniel LyonsThe Advocate General’s opinion in Ibero Tours is expected later this month. An opinion in favour of the taxpayer could well lead to claims for significant VAT refunds for some travel agents.

On 18 July, the CJEU is due to release the AG’s opinion in the case of Ibero Tours (Case C-300/12), about whether the VAT accounting for holiday packages should be based on the ‘headline prices’ – the brochure price for the holiday and the full amount of the travel agent’s commission – or the discounted amounts actually paid by the traveller and received by the agent. The opinion to be delivered by AG Melchior Werthelet on 18 July will be an important indicator of the likely outcome of the case – and significant VAT refunds could be due to agents who have funded discounts made available to customers they have found (not just in the travel industry) if it goes in favour of the taxpayer.

The case was referred to the CJEU in June 2012 by the German Bundefinanzhof (the court of last resort for finance and tax matters in Germany) and concerns holiday packages where the price paid by the traveller is reduced by a discount offered (and funded) by the travel agent (see the questions put to the CJEU). In essence, the travel agent gives up part of its commission for selling the holiday so the customer pays less than the brochure price for it. The European Commission supported the taxpayer’s view that in this situation, the travel agent should account for VAT on the amount actually received.

In the UK, the First-tier Tribunal (FTT) dismissed an appeal by Tui Travel PLC against HMRC’s refusal to repay VAT that the taxpayer claimed had been overpaid on the same basis as Ibero Tours put forward (TC02493). The Tui Travel PLC case had already been heard and was awaiting the FTT’s decision when the Ibero Tours case was referred to the CJEU and the FTT declined an application to delay the delivery of its decision to await the outcome of the reference in Ibero Tours. The Tui Travel case is now under appeal to the Upper Tribunal and it seems probable that the CJEU’s decision in the Ibero Tours case will have a significant influence on the outcome.

Agent funded discounts are a feature of a number of retail sectors as well as the travel industry, and businesses concerned would be well advised to watch these cases – and to consider filing claims for refunds of VAT where appropriate.

What's ahead in July


Consultations: Closing date for comments on Changes to VAT zero-rating of exports from the UK.

Employers: Last date for agreeing PAYE settlement agreements for 2012/13.

First-tier Tribunal hearing: Rapid Sequence v HMRC: VAT exemption for medical care.


Employers: Last date: to give forms P9D and P11D to relevant employees. Deadline for submission of the following: form 42 or other relevant forms to report share-related benefits provided to employees; forms P9D, P11D, P11D(b), or substitutes for tax year ending 5 April 2013.


Court of Appeal hearing: HMRC v DV3 RS Limited Partnership [2012] UKUT 399 (TCC): SDLT on limited partnerships.


G20 meeting: OECD action plan on BEPS report expected around this date.

Parliament: House of Commons rises for Summer recess. The Finance Bill must have received Royal Assent by this date.

Upper Tribunal hearing: Garrett Curran v HMRC [2012] UKFTT 517 (TC): income tax relief on lump sum prepayments of interest on loans taken out for a qualifying purpose.

AG opinion: Expected in Ibero Tours (Case C-300/12): VAT, agent funded discounts.


G20 meeting: OECD action plan on BEPS report expected around this date.

Employers: Deadline for postal payments to reach HMRC Accounts Office for any outstanding class 1A NICs for the tax year ending 5 April 2013.

Upper Tribunal hearings: HMRC v The former Rangers Football Club PLC (in liquidation), HMRC v GM Mining Ltd, HMRC v Premier Property Group Ltd, HMRC v Murray Group Management Ltd, HMRC v Murray Group Holdings Ltd.


Employers: Final date for electronic payments to be cleared in HMRC’s bank account for any outstanding class 1A NICs for 2012/13.


Parliament: House of Lords rises for Summer recess.

Upper Tribunal hearing: Loughborough Student Union v HMRC [2012] UKFTT 331 (TC): accounting for VAT output tax on activities that should have been exempt.


Self-assessment: Deadline for second self-assessment payment on account for tax year ended 5 April 2013.