Other news in brief

New guidance on transfer pricing records for UK permanent establishments published

Transfer pricing records requirements for UK entities are within the scope of Schedule 5 of Finance (No. 2) Act 2023 providing they meet the ‘multinational entity (MNE) group test’. This test is met when a UK member of the MNE group meeting the country-by-country reporting (CbCR) threshold has material controlled transactions. With regard to UK permanent establishments (PEs) however, HMRC’s recently updated guidance advises that this legislation does not apply to UK PEs. The HMRC Guidance states that PEs have the general duty to make and preserve records in order to deliver an accurate tax return to HMRC. On the other hand, additional documentation will be needed in order to confirm the PE’s existence and transactions with the wider enterprise. 

OECD publishes consultation on changes to commentary on Article 5 (permanent establishment) of its model treaty in relation to the extraction of natural resources

On 16 November 2023, the OECD published a consultation document titled ‘Provision on Activities in Connection with the Exploration and Exploitation of Extractible Natural Resources’. It contains draft additional commentary on Article 5 of the OECD Model Tax Convention on Income and on Capital which deals with the definition of permanent establishment (PE). It sets out an alternative provision that States could use to govern the taxation of enterprises in the extractive industries with its centrepiece being a lower PE threshold, which would be crossed after a non-resident enterprise had operated in a State for more than 30 days, and an extension of the rules to apply to both onshore and offshore extractive activities. This is somewhat similar to provisions already included in many bilateral treaties and therefore may not result in significant changes in practice. The consultation also considers whether the alternative provision should extend beyond extractible natural resources to renewable resources such as hydroelectric, wind, wave, tidal and solar. Comments have been requested by 4 January 2024.

OECD crypto-asset reporting framework to be implemented by 2027

On 10 November 2023, the OECD announced that 48 countries, including the UK and the US, have agreed to implement its global tax transparency standard for crypto-assets by 2027. The ‘Crypto-Asset Reporting Framework’ (CARF) provides for the automatic exchange of tax-relevant information on crypto-assets by requiring Reporting Crypto-Asset Service Providers (RCASPs) to collect and report this information to their Tax Authority on an annual basis. Countries, including the UK, that are also signatories to the common reporting standard (CRS) will be implementing updated CRS regulations (to include crypto-assets) at the same time – the new schema is yet to be published.

HMRC publish technical guidance for the UK Reporting Rules for Digital Platforms

All digital platform providers should be aware of the new rules coming into effect from 1 January 2024 requiring UK digital platform operators to report details of their sellers to HMRC. On 14 November 2023, HMRC published detailed technical guidance in the International Exchange of Information Manual at IEIM900000 to help platform operators understand how to comply with the rules. It is worth noting that the UK is 12 months behind the EU where the rules, which originated from the OECD, have already been implemented as ‘DAC7’. Consequently, any platforms that have registered in the EU to fulfil their obligations will soon be able to de-register and commence both EU and domestic platform reporting obligations.

VAT in the Digital Age (ViDA) Deemed Supplier Regime for Platforms

In addition to the above, the EU ViDA package adopted on 8 December 2022, contained new proposed rules under which platforms in the short term accommodation and passenger transport sectors become responsible for collection of VAT where the underlying supplier does not charge VAT in the relevant EU member state where the supply takes place. Concerns have been raised over the imposition of such a deemed supplier regime and EU agreement is yet to be reached. The new rules are due to be introduced with effect from 1 January 2025 and, whilst meetings are scheduled in November/December 2023, it is possible that introduction of the new rules may be delayed.

Supreme Court judgment on transfer of assets abroad rules

The taxpayers have won their appeal to the Supreme Court in Commissioner of HMRC v Fisher and anor. The Supreme Court held that this income tax anti avoidance legislation on transferors is limited to charging individuals who transfer assets abroad. The Court also held that these rules do not apply to an individual in relation to a transfer made by a company in which they are a shareholder, regardless of the size of their shareholding.