Section 18A of the Corporation Tax Act 2009 states that a UK resident company is entitled to make a Foreign Branch Exemption Election (“FBEE”). If a FBEE is made adjustments are required to be made in the calculation of the company’s total taxable profits. This means that any accounting profits or losses that arise in a foreign permanent establishment (“PE”) will not be included in the profits/losses chargeable to UK Corporate Income Tax (“CIT”).
On Saturday 5th June, the G7 countries, comprising of the United Kingdom, Canada, France, Germany, Italy, Japan and the United States, agreed to back an historic international agreement that will bring to fruition significant global tax reform at the end of 2021. This is a step towards tackling tax avoidance in international group operations. Following years of discussions, finance ministers agreed to reforms which will see multinationals pay their fair share of tax in the countries they do business.
As discussed in our Blog “Brexit and National Insurance – rules from 1 January 2021”, A1 certificates continue to be obtained for posted workers so that UK resident employees and employers can remain within the UK National Insurance system and exempt from local social security contributions whilst working in countries within the EU, Iceland, Liechtenstein, Norway or Switzerland. Following the UK’s exit from the EU, although the new agreement in this respect is almost a direct replica of the previous regulations, the application process for obtaining such coverage has seen some changes.
Statistics suggest that the UK tax gap, ie the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid, fell to the lowest rate on record for the 2018/19 tax year @ 4.7%. This is a major achievement for HMRC and reflects investments made in automating many administrative systems to make it as easy as possible for taxpayers to pay the right tax, at the right time. It also reflects their success acting against those who have sought to deliberately evade their Offshore tax obligations. More than £3 bn has been secured by the UK Government since 2010, just from initiatives that focused on Offshore non- compliance.
The Treasury and Chancellor previously suggested that more effective tax changes would be introduced after undertaking consultation and seeking comment on the output from such consultation exercises. Therefore, instead of this being lost in the Budget Announcement a separate date, Tax Day, was set for the consultation announcements to be delivered – 23 March 21.
Despite the global mobility issues Covid-19 has caused during 2020, UK companies have still been presented with opportunities to work overseas. In particular, we have seen UK clients working in Norway, Denmark, Germany, UAE, Saudi and Taiwan, just to name a few. When any work is undertaken in an overseas territory, it is important to remember that UK companies must remain compliant with the local tax laws and any resultant filing obligations, in addition to their UK tax obligations. Additionally, it is evident that overseas authorities are actively seeking to ensure that non-resident companies are compliant, paying the required taxes due, and filing the necessary returns by monitoring their days spent in country. Some authorities are more advanced, like Norway who have a dedicated tracking system.