Other news in brief

The OECD has confirmed it is working on a qualified domestic minimum top-up tax (QDMTT) safe harbour expected to be released by this summer as part of its Pillar Two implementation work. The current Model Rules require the jurisdictional calculations to be made at a Constituent Entity level and Ultimate Parent Entity level with credit for the QDMTT payable against Income Inclusion Rule (IIR) top up tax. An exemption mechanism would be clearly preferable from a taxpayer perspective in terms of easing the compliance burden and a movement towards such a position would be welcome.

AXA Sun Life Plc and others (the ‘Claimants’) were non-test claimants in the CFC and Dividend Group Litigation Order (CFC GLO). Broadly, the issues in the CFC GLO relevant to the Claimants concerned corporation tax (and certain advance corporation tax (ACT) matters) levied in breach of EU law. These were pursued by way of a test case in the CFC GLO by Prudential Assurance Co Ltd. The Claimants had overseas portfolio holdings which are the subject of their claims in the CFC GLO. As a result of both the CFC GLO and similar litigation in the Franked Investment Income Group Litigation Order, in principle a remedy in restitution should have been available for the imposition of corporation tax on overseas dividends in breach of EU law as detailed in those judgments. However, there are certain practical issues that remain to be determined concerning quantification matters and limitation. Such issues are the subject of the AXA Sun Life Plc and Ors v HMRC [2023] EWHC 944 (Ch) judgment, albeit this is a preliminary judgment in relation to an application hearing. There are a number of preliminary issues. Firstly, the ‘Limitation Issue’ - whether the test case in the CFC GLO meant that the Claimants’ restitution claims were within the appropriate limitation period. Secondly, the ‘Set-Off Issue’ - the availability of a restitution claim for unlawful ACT utilised against lawful tax or repaid before the date of claim. Finally, the ‘Pleading Issue’ - whether a claim for the recovery of tax paid as a result of an inability to offset unused double tax relief (DTR) credits had been pleaded in restitution. The first two issues were determined in HMRC’s favour, with the Pleading Issue determined in favour of the Claimants.

There has been no parliamentary activity on Finance (No. 2 Bill) 2022-23 (Spring Finance Bill) in the last fortnight but, in anticipation of the Public Bill Committee stage starting on 16 May 2023, the Government has tabled a number of amendments.  The amendments are all minor changes to ensure the Finance Bill legislation operates as the Government intends rather than any major changes in policy.  The subjects covered include amendments to the definition of ‘insurance company’ for the Corporate Interest Restriction (CIR) to clarify it includes certain overseas insurance companies, and clarification of how the elective accruals basis for carried interest applies to arrangements where the timing of profit distributions to investors impacts upon the amount of carried interest due. There are also small changes to the Finance Bill provisions on estates in administration and trusts and Vehicle Excise Duty for rigid heavy goods vehicles (HGVs) and simplification of asset transfer rules that apply to capital gains tax and divorce.

Statutory Instrument (SI) 2023 No. 508 (The Tonnage Tax (Further Opportunity for Election) Order 2023) was laid before Parliament on 11 May 2023. As was announced in the March 2023 Budget, a new tonnage tax ‘election window’ is being opened for the period 1 June 2023 to 30 November 2024. During this 18 month period, qualifying shipping companies will be able to elect into UK tonnage tax. Their election may take effect from the beginning of the accounting period in which it is made, but not before 1 January 2023. By way of background, the general rule in Schedule 22 Finance Act 2000 is that companies which qualified for tonnage tax had to make an election in the original window ending 28 July 2001 (or in the further window opened in 2005/6): if they chose not to do so on either occasion, the opportunity to elect subsequently was lost. The SI now gives them a further opportunity. We understand that this opportunity is also open to companies and groups which have previously been within the UK tonnage tax regime, but have left it. Normally such companies would not be able to return to tonnage tax.

HMRC have announced a change in their approach to charging late payment interest in the absence of a WHT deduction or treaty clearance in respect of interest or royalties paid to an EU member state taxpayer. HMRC’s general approach to such cases (i.e. in respect of non-EU recipients) has been that late payment interest is due under s87 TMA 1970, accruing from the date the WHT was due until the date of payment, including in respect of any interest or royalty payments made before treaty clearance is granted. However, following the decision in the TTL EOOD case, HMRC had accepted that they were precluded, on European law principles, from charging this late payment interest in respect of payments to EU recipients. Now, HMRC’s Guidance (at INTM413230) has been updated. Since Brexit, HMRC no longer consider themself bound by TTL EOOD and from 4 May 2023 will charge late payment interest in these circumstances on payments to EU recipients also. UK borrowers or licensees from foreign related parties should be mindful of the need to apply for clearance in good time in order to rely on treaty relief.