A number of measures were announced to target business tax avoidance. These include:
1. Diverted profits tax
There will be a new diverted profits tax on companies that will apply at a rate of 25% from 1 April 2015. It will apply to business activities between connected entities that are set up to achieve an “unfair tax advantage”.
The purpose of the tax is to counter multinational enterprises using aggressive tax planning techniques to divert profits from the UK and reduce their UK corporation tax liability. The announcement contains little detail and does not specify how the charge will be calculated.
The draft legislation is to be included in the Finance Bill 2015.
2. Promoters and users of tax avoidance schemes
Six announcements concerning promoters and users of tax avoidance schemes:
i) High-risk promoters. Changes to “clarify” the high-risk promoters regime. These include widening the persons connected with the promoter and clarifying the time limits within which HMRC can issue conduct notices.
ii) GAAR. HMRC is to consult in early 2015 on whether and, if so, how to introduce GAAR-related penalties. Currently, there are no GAAR specific penalties if the GAAR applies and counteraction adjustments are required to be made (although penalties for errors and late payment under the existing penalty regimes may apply).
iii) Publishing DOTAS scheme details and naming scheme promoters. The government will empower HMRC to publish information about scheme promoters and schemes that are notified under DOTAS. Legislation to implement this measure is expected in the Finance Bill 2015.
iv) Strengthening the DOTAS regime. Following a consultation in the summer it is confirmed that legislation will be introduced in the Finance Bill 2015 to strengthen the current regime. This will include introducing new, and widening existing, hallmarks and removing the grandfathering provisions, which have allowed promoters to argue that new arrangements that rely on existing arrangements as building blocks, need not be disclosed. Further, penalties for failing to disclose are to be increased and the information disclosure requirements amended. The legislation will take effect from Royal Assent to the Finance Bill 2015.
v) DOTAS taskforce. A new taskforce will be created to ensure the effective policing of the DOTAS regime.
vi) Serial avoiders. HMRC is to consult in early 2015 on introducing further deterrents (penalties, reporting obligations and “naming and shaming”) on repeat users of known avoidance schemes.
3. Miscellaneous income tax loss relief: restrictions
Two changes to the miscellaneous loss relief rules will be introduced in the Finance Bill 2015 to counter avoidance of income tax involving losses from miscellaneous transactions. (Miscellaneous loss relief arises on a transaction if, assuming a profit had been made, it would have been chargeable to income tax under any of the provisions listed in section 1016 of the Income Tax Act 2007 (section 1016).
The first change, which applies to miscellaneous income or miscellaneous losses arising on or after 3 December 2014, denies loss relief if the loss or the income arises “directly or indirectly in consequence of, or otherwise in connection with” relevant tax avoidance arrangements. Relevant tax avoidance arrangements are arrangements to which the taxpayer is a party and a main purpose of which is to reduce a tax liability.
The second change, which applies from 6 April 2015, restricts loss relief to income of the same type. Currently, miscellaneous losses can be set against any income type falling within section 1016. Thus losses from intellectual property rights can be set against interest income. From 6 April 2015, the loss can only be set against income of the same type and any unrelieved loss must be carried forward and set against income of the same type in the next tax year.
3. Accelerated payments and group relief
Extension of the existing accelerated payment rules to cater for avoidance schemes giving rise to losses to be surrendered by way of group relief. This extension will apply if the existing criteria for issuing an accelerated payment notice are met but the company undertaking the avoidance arrangements does not have any tax to pay itself. In these circumstances, the notice can prevent the company from making a group relief surrender of the disputed amount.
This measure is to be included in the Finance Bill 2015 and to have effect from Royal Assent.