The International Tax Round Spring 2024

Editor’s message

The phrase ‘wake up and smell the coffee’ is used to ground us and make us aware of what’s happening but today, on my last day in Cape Town, I’m taking this more literally. One of the most irresistible smells for me is that of freshy roasted coffee beans and as the deeply sweet aroma wafts through the air, it’s time to make a tough choice – Cortado or Flat White? Cortado, translating to cut, comes heavily recommended, containing a punchy ratio of equal parts coffee to milk – surely the best choice to start the day, I reason.

As I sip, I reflect on how many new coffee spots have emerged in Cape Town in recent years, with avid java drinkers firing up laptops everywhere I glance. My routine business trip here contains a pacey schedule of introductions, clients meetings and, of course, expanding my network. Whilst each day has been hectic, a stunning sunset to wind down the day has always generously compensated.

Notably, it’s not just the coffee scene that’s booming here. Cape Town has seen a big semigration trend with many South Africans from Johannesburg moving in search of superior services and overall quality of life. In turn this has elevated certain destinations of the Western Cape into hotspots, driving a surge in demand for property.

Passionate conversations around the upcoming elections in South Africa were had, leading to equally passionate talk on our spring budget, announced on my last day in Cape Town. Despite the level of hype, the non-UK domicile regime has come as a real surprise, perhaps a politically motivated tactic to outperform Labour. Non-domiciled individuals currently living in the UK and those planning to move to the UK will need to consider how these updates will affect them. For now, like many, I am mentally preparing to lean into the myriad of changes that will come once further detail is released and legislation is published.

As my thoughts meander through the possibilities and I gear up to figuratively smell the coffee when I’m back home, I’m grateful for the timing of the final leg of my trip. Mauritius awaits and I’m really looking forward to meeting my network, which will serve as a perfectly timed opportunity to discuss the hotly-debated budget update. I’m also looking forward to learning about the country, more of which I’ll update you on in my next note.

For now, it’s farewell from the Mother City – enjoy the read!

• Jeremy Hunt ends the Remittance Basis, what does this mean for non doms?
• EU implements minimum Corporation Tax rate
• Labour Party commits to not raising main rate of Corporation Tax above 25%
• Does your property company fall into scope of the ATED charge?
• HMRC win £2.9 million Capital Gains Tax case against ‘offshore’ trust based on Place Of Effective Management
• UK VAT and non-resident companies
• Multinational minimum taxation by Haunschmidt & Partner

Jeremy Hunt ends the Remittance Basis, what does this mean for non doms?

In a Spring budget full of giveaways and cuts trying to woo voters to reverse the lowest polling for the Conservatives in four decades, Jeremy Hunt has done what successive governments have always talked about: ending the remittance basis. The remittance basis allows individual taxpayers who have their ‘permanent home’ abroad, known as non-doms, to elect not to pay tax on their foreign income and gains provided they do not bring the money into the UK. The concept of domicile and access to the remittance basis is one of the trickier aspects of International Tax for individuals and has recently been the subject of great discussion in the public and wider tax world.

From 1 April 2025, the remittance basis will be replaced with a residency-based system whereby new arrivals into the UK (regardless if they are from the UK originally or not) can elect to not tax their foreign income and gains for the first four years of residency. After the four years have elapsed, the taxpayer is subject to tax on their worldwide income and will need to stay out of the UK for 10 years to access the relief again.

There will also be transitional rules in place for those currently claiming the remittance basis:

• Taxation on only 50% of foreign income during the 2025/26 tax year.
• A two-year window from April 6 2025, allowing the remittance of pre-April 2025 income and gains to the UK with a reduced tax rate of 12%.
• Non-UK assets can be rebased to their market value as at April 5, 2019.

These changes represent a massive shake-up, and will leave many non-doms feeling like playing The Clash’s ‘Should I stay or should I go’ on repeat.

For more information, read our article: Major change for non-dom residents: The end of the remittance basis

EU implements minimum Corporation Tax rate

Back in 2021, the Organisation for Economic Cooperation and Development (OECD) agreed on a two-pronged approach to tacking international taxation particularly on large Multi-National Enterprises (MNEs). One of the approaches was to implement an effective 15% minimum Corporation Tax rate across the 137 jurisdictions that agreed to the plan.

From 1 January 2024, new EU rules mean that large companies that have either a parent or subsidiary company in an EU member state will have to pay the new rate. The rule will apply to any group of companies that have revenue exceeding €750,000,000. The effective tax rate is calculated per country, meaning in countries and jurisdictions that a company pays under the 15% rate, they must pay a top up tax to reach this threshold.

Labour Party commits to not raising main rate of Corporation Tax above 25%

Rachel Reeves, the Shadow Chancellor of the Exchequer has confirmed that the Labour Party would not increase the main rate of Corporation Tax above the current 25%. Should the Labour Party come to power later this year, this should provide a degree of certainty to Non-Resident property companies who currently are not eligible to benefit from the Small Profits Rate nor Marginal Relief and thus pay the full main rate regardless if their profits are low.

Since 1 April 2023, the UK moved to a main rate of Corporation Tax of 25% with lower profit companies paying less if their profits were below £250,000. However, companies that are non-resident and/or Close Investment Holding Companies are excluded from accessing the relief available.

It will be interesting to see if the Labour Party stick to this commitment should they come to power, especially with the UK officially in a recession following a weak Q4 2023. Watch this space!

Does your property company fall into scope of the ATED charge?

The filing period for the Annual Tax on Enveloped Dwellings (ATED) is soon approaching. Companies that hold high-value residential property may be liable to pay between £4,400 and £287,500 depending on the value of the property.

Whether your company is resident here in the UK or abroad, those that hold UK property valued at over £500,000 (as at 1 April 2022) must submit annual ATED returns in advance. The filing deadline is 30 April 2024 and covers the period 1 April 2024 to 31 March 2025. There are a number of reliefs from the charge such as if the property is let commercially, occupied by third parties, used for development purposes as well as many others.

The charges for the year are as follows:

Don’t get caught out, get in contact today and we at GE can help with your compliance obligations.

HMRC win £2.9 million Capital Gains Tax case against ‘offshore’ trust based on Place Of Effective Management

The First Tier Tribunal (FTT) has dismissed an appeal from the trustees of an Isle of Man (IoM) trust and £2.9 million of Capital Gains have been brought into charge in the UK as a result of gains arising on the liquidation of an IoM company. The trustees were originally based in the Isle of Man before trusteeship was transferred to Mauritius and then back to the UK after the company was liquidated.

The taxpayer had argued that the trust was offshore due the trustees being based in Mauritius at the time of liquidation and therefore the double taxation treaty between Mauritius and the UK would deem the gains not taxable in the UK. HMRC countered that the structure was effectively managed from the UK and thus the Place of Effective Management was in the UK and thus should be taxed in the UK regardless of the Mauritian trustees.

The judge sided with HMRC after using the tiebreaker provisions in the treaty and said it was ‘devised and arranged’ in the UK and would not have gone ahead without the authorisation of the eventual UK trustees. This led to £988,444.26 of CGT being payable by the trust.

This case highlights the need to be careful of the residency position of a trust/entity when a transaction takes place, together with taking into account control and management to understand the tax treatment.

UK VAT and non-resident companies

Non-UK businesses (Non-established taxable person or NETP ) doing business in the UK can sometimes have difficulty understanding and complying with their UK VAT requirements. These are a few items we recommend you look out for:

• Understanding at what point, or even if, you are required to register for UK VAT.
• Whether you have a fixed establishment for VAT purposes.
• Failure or inability to submit your UK VAT returns and incurring additional costs in interest and/or penalties.
• Making incorrect payments based on estimated returns issued by HMRC who will still expect any VAT registered business to submit the correct return.
• Unable to submit your VAT returns through your government gateway.
• Lack of understanding regarding payments and repayments into a non-UK bank account.
• VAT and selling online to the UK.

This can be a wide topic and we will be producing further information, via our website, in the next few weeks. However, in the meantime, if you are concerned about any of these points, contact our VAT team.

VOICES FROM XLNC – OUR INTERNATIONAL ALLIANCE

Multinational minimum taxation

Multinational corporate groups and large domestic companies must comply with the Minimum Taxation Act (MinBestG) for fiscal years starting from December 31, 2023, ensuring a taxation of all corporate entities at a minimum rate of 15%.

Due to an EU directive, Austria had to implement the Minimum Taxation Law (MinBestG) by the end of 2023. This law is based on the OECD’s Pillar 2 proposal, which was agreed upon in October 2021 by 137 states and territories (OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting)).

From 2024 – specifically for fiscal years starting from December 31, 2023 – multinational corporate groups and business units located in Austria that belong to a corporate group are subject to a minimum tax of 15%. The requirement is that their annual revenue according to the group’s consolidated financial statements in at least two of the four preceding fiscal years was at least 750 million euros.

The new act affects about 6,500 business units and approximately 120 corporate groups based in Austria. Business units are defined as both subsidiaries and branches.
Exemptions apply to state entities, international organisations, non-profit organisations, pension funds, as well as investment funds and real estate investment vehicles that are the ultimate parent company.

For each jurisdiction where a business unit is based, the effective tax rate must first be determined. This effective tax rate is then compared to the minimum tax rate of 15%. If it is less than 15%, the difference is subject to the so-called Top-Up Tax. For more detailed information, please refer to our Minimum Taxation Law factsheet.

For further information, contact Mag. Robert Haunschmidt, Partner at Haunschmidt & Partner.