Whilst there wasn’t apparently too much to discuss in the Chancellor’s speech itself, once he sat down and we had the chance to look through the various HMRC and HM Treasury documents published online there was more than enough for us to get our teeth into.

Of particular interest was the Digital Economy Position Paper. This is a follow on from the OECD’s BEPS project, but more particularly the more recent publication by the European Commission looking at the potential introduction of a ‘turnover tax’ on profits arising in the EU from digital related sales. The crucial point here is that whilst the OECD’s preference for dealing with tax on digital businesses was thought to be rooted in VAT, GST and sales tax solutions, certain jurisdictions are actually considering heading off into a revolutionary direction and following the economic nexus approach being championed by several US states in their pursuit of sales tax and business profits tax. Digital businesses need to begin to understand where all of this is going.

Part of the digital economy positioning paper set out in a little more detail the Chancellor’s comment that in certain circumstances UK income tax would be due on royalties paid to IP holding companies in low or no tax jurisdictions. My initial thought was that diverted profits tax and the recent introduction of changes to the withholding tax on royalty rules should have been sufficient to protect the UK tax base, but it seems the scenario under consideration involves no UK resident entity or taxable person under normal principles – the withholding tax proposed seems to be extra-territorial and beyond the reach of the UK tax authorities. There is more to come on this I think.

Continuing the digital economy theme the introduction of joint liability for online marketplace from a VAT perspective was not a great surprise, but it will have big implications for those businesses who operate such platforms. One assumes that on-boarding sellers will become slightly more onerous however Amazon, for example, already has the processes to deal with much of this.

Perhaps the surprise of the day was the introduction of UK CGT on the disposal of commercial property by non-residents, and the introduction of tax charge on the indirect disposal of residential and commercial properties (via share sales) by non-resident persons. A more detailed article on this topic is available on our website.

In other matters the law allowing the introduction of the OECD’s multilateral instrument (MLI) to bring into effect the various BEPS recommendations that the UK has agreed to adopt is one step closer. The complexity of the MLI is already starting to become apparent and it will be interesting to see how taxpayers deal with it next year when it will largely come into force.

Also there is a rule tweak to ensure that overseas permanent establishments cannot use their losses against UK profits where they have already been group relieved in the overseas jurisdiction. Some strengthening of the targeted anti-avoidance rule in respect of double tax relief has also been introduced, as well as provisions counteracting perceived abuse with depreciatory transactions and capital losses – not something that is widely seen following the introduction (and recent changes to) of SSE.

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