The International Tax Round Autumn 2022

Welcome to the autumn edition of The International Tax Round! In this edition, Sonal Shah keeps you up to date with the latest global tax developments, including the deferral of the UK implementation of a global minimum corporate tax rate, domicile and how it can be misunderstood and the latest on penalties that apply to the UK Trust Registration Service.

Editor’s message

If the shade of the leaves, and my reluctant glance at the calendar, didn’t tell me that summer is drawing to a close, I’d be none the wiser. This year the glorious UK weather smashed our usual holiday hotspots and I sense it will be harder than usual to say goodbye to the long balmy days we’ve indulged in. My growing tally of out-of-office replies suggests people are clinging on to the season that truly spoilt us.

Unusually, travel wasn’t part of my summer this year. My attention instead shifted not only closer to home, but inside it. I’ve been overseeing a house project and despite the usual complexities that come with any major renovation, I’m really looking forward to seeing our vision come to life. [Admittedly] against a backdrop of exponential costs – a term we are hearing far too frequently – my knowledge of the construction industry has been somewhat fast-tracked.

Speaking of speeding things up, the new legislation to register overseas entities came into force sooner than expected, on Monday 1 August, in an effort to combat corruption and prompt greater transparency around the ownership of UK property. We will have to see how this impacts overseas investors into UK real estate and until then, we will need to get to grips with the associated requirements and processes.

Change on a broader scale is soon expected with the Tory leadership contest coming to a close, culminating on Monday 5 September with a new PM for the UK. Much will be dictated by their visions on spending and tax.

For the very first time in this publication, we feature an article from our Dutch associates, and dear friends, STP Tax Lawyers. We’re excited to share this and hope you will enjoy their insight on The Netherlands: Post-Brexit gateway to the EU.

Against the backdrop of looming change, it’s only fitting that the decision of a new colour palette for my interior walls awaits. I’ve been advised that blue and green are the trending colours for the next ten years. How they’ve seen so far ahead is beyond me – perhaps there’s more I should ask them…

For now, happy reading!

In this edition, I’m pleased to bring you the latest information on:

• UK implementation of global minimum corporate tax rate to be deferred to 2024
• Domicile and how it can be misunderstood
• UK VAT refunds for non-UK businesses post Brexit
• Statutory residence test: The complexities
• UK Trust Registration Service (TRS): HMRC’s approach to penalties
• The Netherlands: Post-Brexit gateway to the EU by STP Tax

UK implementation of global minimum corporate tax rate to be deferred to 2024

The government has announced that the UK legislation on the implementation of the OECD proposals for a global minimum corporate tax rate will apply to accounting periods ending on or after 31 December 2023. In the UK’s consultation on UK implementation of this particular aspect (pillar two) of the OECD’s wider proposals on addressing the tax challenges arising from the digitalisation of the economy, the original proposed start date was 1 April 2023.

The government has acknowledged concerns raised in the consultation about the lead-in time before UK implementation, given the complexity of the rules, ongoing discussions with the OECD concerning policy and administrative issues, and the need for businesses to take preparatory steps to ensure compliance. The deferral of the start date will be confirmed in a formal consultation response to be published later this summer.

Domicile and how it can be misunderstood

In recent years, there has been an increase in the number of enquiries raised by HM Revenue and Customs (HMRC) into the domicile status of individuals, particularly those who have been resident in the UK for many years. Whilst changes to the taxation of non-doms were made in 2017, which meant that those who are long-term residents are no longer able to claim the remittance basis, domicile under general law is still important. Domicile is explained further in our recent article here.

There are of course many other triggers to prompt a domicile enquiry (for example, pressure on HMRC to improve tax collection), which will be specific to the particular circumstances of an individual and the enquiry is likely to be lengthy and onerous in terms of the questions and information requested. Therefore, we recommend that rather than being reactive when a domicile enquiry is made, non-doms should take a proactive stance and continually maintain and add to a “domicile file” to safely record evidence of their origins, past actions and future plans to ensure that domicile status can be adequately evidenced to HMRC and the tribunal if required.

UK VAT refunds for non-UK businesses post Brexit

When the UK was in the EU, there was a central online portal that covered any VAT claims across the EU. Now that we are no longer part of the EU, it is a separate process, and all forms must be completed manually and in English. Every year thousands of non-UK businesses submit a claim for VAT incurred in the UK.

The UK VAT refund process is for those businesses who cannot register for VAT in the UK but have incurred costs with VAT here e.g. attended a trade show.

The claim year runs from 1 July – 30 June so, claims for the 2021/22 can be submitted from now until 31 December 2022, late claims are not permitted.

This is a reminder for any non-UK businesses who have incurred VAT costs in the UK to gather the necessary information in order to submit their claim. The earlier any claim is submitted, the quicker it is processed. HMRC gets particularly busy dealing with these claims the nearer to the deadline it gets.

Statutory Residence Test: The complexities

The Statutory Residence Test (SRT) can provide individuals with welcome certainty in relation to their UK residence status, but it is important not to underestimate the complexities of the rules.

The SRT is relatively straight forward and is based on three definitive tests and, although each of the tests is based on distinct criteria, the key component in each is the counting of the number of days during which an individual is present in the UK.

If you are unsure of your residence status, we’ve created a statutory residence test flowchart to help navigate the complexities. The flowchart provides guidance and questions for you to answer to give you an indication of your residence status.

An individual is either UK resident for a whole tax year or not. However, where an individual arrives in or leaves the UK part way through a tax year, split year treatment may apply.

Although the SRT can provide a clear and concise answer on UK residency, there are many terms within the various tests that are specifically defined and therefore each individual should consider the detailed rules in light of their specific circumstances and ensure that they take appropriate professional advice.

View our SRT flowchart here.

UK Trust Registration Service (TRS): HMRC’s approach to penalties

HMRC has confirmed that penalties will apply if trustees fail to register on time or fail to keep the register up to date. The penalties are imposed under Part 9 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Failure to register could lead to a £5,000 penalty per offence. This means that where there is a deliberate act on behalf of the trustees, the penalty will apply.

However, HMRC has confirmed that in recognition of the fact that the registration requirements are new and an unfamiliar obligation for the trustees, there will be no penalty for a first offence, either for failure to register or late registration, unless this is deliberate.

Should HMRC become aware of a trust which has not been registered by the relevant deadline, a warning letter will be issued. Trustees ought to register the trust within the deadline stipulated in the letter, otherwise a fine may be issued to the trustees.

Trustees are therefore urged to ensure that they have taken the necessary steps to be compliant.

For more info on the UK TRS, view our article here.

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The Netherlands – Post-Brexit gateway to the EU by STP Tax

The Netherlands has been an attractive gateway to the EU market in the post-Brexit reality. UK based businesses have used the Netherlands as an EU based logistical hub and benefited from robust local tax and legal systems. Especially in context of trade in goods, the combination of relatively uncomplicated VAT compliance obligations (monthly/quarterly VAT returns instead of increasingly prevalent real-time VAT reporting), as well as a wide range of specific VAT regimes (such as import VAT deferment license), coupled with reasonably “relaxed” local tax authorities, constitute an attractive foundation for foreign investment. Needless to say, Brexit has only amplified this perception of the Netherlands.

STP Tax discuss the further benefits of expanding through the Netherlands here.