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Contents

• Further changes ahead for non-doms
• Property highs all round
• Central Management and Control
• Property rich company rules – are you aware?
• TBEA Shenyang Transformer Group Limited vs. DCIT: Transfer Pricing Implications for Foreign HO and Indian PO Transactions by Chheda & Associates

Further changes ahead for non-doms

As is often the case with a new government, a raft of legislative changes has recently been introduced, with a key change being the abolishment of the non-dom regime and the remittance basis of taxation. The changes, introduced by the Conservatives and further tweaked by Labour in the Autumn budget, are set to come into effect from April 2025.

At the World Economic Forum in Davos 2025, Rachel Reeves the Chancellor of the Exchequer has said there will be even further tweaks to the regime, in particular to the Temporary Repatriation Facility, which is the transition period for former remittance basis users. With nip after tuck to this legislation, it will be interesting to see what Frankenstein’s monster of a change will actually be brought in on April 2025!

To read more, we have written about the changes in more detail here.

Property highs all round

The price tag on the average UK house has reached a new high, as reported by the Halifax House Price Index, the average price is £299,138 across the UK and £548,288 in London. Amanda Bryden, head of mortgages at Halifax puts some of this demand down to ‘first-time buyers eager to complete transactions before the end of March’ due to the upcoming changes to SDLT/LBTT.

The changes in April 2025 will reduce the first-time buyer threshold from £425,000 to £300,000. Properties for first time buyers bought within these thresholds will not have to pay SDLT. With the ever-rising prices of UK property, purchasing a home remains out of reach for many workers, who earn on average £37,430 in the UK and £47,455 in London

Even looking abroad, buying property seems unaffordable. The Spanish Prime Minister, Pedro Sanchez, has announced a plan to deter foreign buyers by introducing up to 100% property tax on purchases made by non-EU residents.

Of course, now that the UK has left the EU, warm and comfortable retirements in the sun may be out of reach for those looking to relocate. This proposal along with Sanchez’s proposed higher taxes on AirBnB style rentals may see the Spanish property market relax. Will other countries follow suit and try to deter previously welcomed overseas purchasers?

Central Management and Control

With Central Management and Control, you’re steering the ship—without it, you’re just Cruising Mindlessly into Chaos

The central management and control (CMC) test is a key factor in determining a company’s tax residency for many jurisdictions, including the UK. Understanding how tax authorities apply this test is essential for businesses operating across borders as it can led to unexpected liabilities.

In many jurisdictions, a company is considered to be tax resident where its central management and control is exercised rather than where it is incorporated. This is particularly important for offshore entities, especially if its real decision-making power is in the UK as the tax treatment varies depending on residency. Key factors in determining CMC are as follows:

• Location of board meeting.
• Substance of directors’ roles.
• Influence of UK parent or shareholders.
• Company records and documentation.

Tax authorities globally are cracking down on artificial tax residency claims emphasising substance over form. Some recent tax case and challenges that we can learn from:

• De Beers Consolidated Mine Ltd v Howe (1906) – A south African company was deemed UK tax resident because it major decisions were made in London.
• Laerstate BV v HMRC (2009) – A Dutch company was found to be UK resident because its sole director was a UK tax resident and made all key decisions from the UK.

Tax residency disputes can lead to unexpected tax bills, penalties and reputational damage – careful planning and taking the right advice is key. Get in touch if you believe you need your management structure reviewed.

Property rich company rules – are you aware?

A company is considered “property-rich” if at least 75% of its asset value is derived from UK land or property. As we often see, non-resident companies often hold land and property for investment or business purposes. Selling the company as a whole, rather than the property it holds, can have benefits such as reducing transaction taxes and simplifying ownership transfers.

Since April 2019, non-residents are subject to tax on the sale of UK property-rich entities. This means that even if the company is based overseas, the gain on shares can still be taxed in the UK if the company primarily holds UK land and property.

Even though the property has not changed hands, the disposals of any property rich company would have to be reported on the taxpayer’s annual tax return, and the appropriate tax paid (Corporation Tax or Capital Gains Tax).

Navigating UK property taxation can be difficult, and if you require assistance please do get in touch.

TBEA Shenyang Transformer Group Limited vs. DCIT: Transfer Pricing Implications for Foreign HO and Indian PO Transactions

The Special Bench of the Ahmedabad Tribunal has delivered a significant ruling in the case of TBEA Shenyang Transformer Group Company Limited vs. DCIT, addressing the applicability of transfer pricing provisions to transactions between a foreign Head Office (HO) and its Project Office (PO) in India. The case involved a Chinese company with a PO in India, which was established to execute onshore services for a contract with Power Grid Corporation of India Ltd. (PGCIL).

The Special Bench held that the Indian PO qualifies as an ‘enterprise’ under transfer pricing provisions, and transactions between the HO and PO are considered international transactions subject to arm’s length price adjustments. The ruling emphasises that the PE must be treated as a separate and distinct enterprise for determining business profits, in line with Article 7(2) of the Double Taxation Avoidance Agreement (DTAA).

The Tribunal rejected the assessee’s argument that there was a conflict between Article 9 of the DTAA and India’s transfer pricing regulations. It concluded that even if the DTAA is assumed to prevail, profits must be attributed to the PE as if it were an independent enterprise, aligning with the arm’s length principle. This decision has significant implications for multinational enterprises operating in India through branch or project offices, particularly regarding the application of arm’s length principles in such arrangements.

For further information or advice contact Ms. Trisha Bihade, Tax Manager at Chheda & Associates.