UK: Weekly Tax Update - Monday 18 June 2012

Last Updated: 27 June 2012
Article by Richard Mannion

1. General news

1.1. UK/Lichtenstein double tax agreement

A first-time comprehensive Double Taxation Convention between the UK and the Principality of Liechtenstein was signed in London on 11 June 2012 by David Gauke MP, Exchequer Secretary to the Treasury and Dr Klaus Tschütsche,the Prime Minister of Liechtenstein.

The Convention marks a further enhancement in cooperation between the UK and Liechtenstein in the field of taxation. The Convention generally follows the Organisation for Economic Co-operation and Development (OECD) Model Double Taxation Convention.

Important features include zero withholding rates for dividends (with 15 per cent for RIETS), zero withholding rates on interest and royalties and the latest OECD Model provision on exchange of information.

The third joint declaration on the Liechtenstein Disclosure Facility was also signed.

www.hmrc.gov.uk/taxtreaties/news/liechtenstein.htm

1.2. GAAR consultation

The consultation on introducing a general anti-abuse rule (GAAR) was issued on 12 June, and is open for comments until 14 September.

The proposals follow very closely the suggestions put forward in the Graham Aaronson report published on 11 November 2011. The GAAR aims to counteract tax advantages arising from abusive tax avoidance arrangements. The consultation clarifies that this is required because these are often complex and/or novel arrangements that could not have been contemplated directly when formulating the tax legislation. The consultation paper comments that the GAAR should not affect what is described as "the centre ground of tax planning", though whether this is a realistic goal with the proposed draft legislation may only become apparent when it has been in operation for some time and HMRC, taxpayers, their advisers and the Courts have an agreed understanding of its interpretation.

Tax arrangements for the purpose of the GAAR are those for which, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.

Tax arrangements are abusive if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action, having regard to all the circumstances including:

(a) the relevant tax provisions;

(b) the substantive results of the arrangements; and

(c) any other arrangements of which the arrangements form part.

The reference to the relevant tax provisions includes:

(a) any principles on which they are based (whether express or implied);

(b) their policy objectives; and

(c) any shortcomings in them that the arrangements are intended to exploit.

Included in the draft legislation is the following list of indicators which might be regarded as abusive:

  • the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes,
  • the arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes,
  • the arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid,
  • the arrangements involve a transaction or agreement the consideration for which is an amount or value significantly different from market value or which otherwise contains non-commercial terms.

The GAAR will apply to the following taxes:

(a) income tax;

(b) corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax;

(c) capital gains tax;

(d) petroleum revenue tax;

(e) inheritance tax;

(f) stamp duty land tax; and

(g) the new tax on ownership of high-value residential properties or dwellings to be created by FA 2013.

Where the GAAR applies, counteraction will be applied to the tax advantage on a just and reasonable basis.

The consultation sets out in more detail how the Government envisages the GAAR being applied in practice, as follows:

  • The GAAR would be part of the self assessment process where it applies, and within the administration rules of those taxes not within self assessment (such as SDLT, PRT, NIC and IHT);
  • There will be no clearance process;
  • As recommended in the Graham Aaronson report, it is proposed there will be an advisory panel and the process for applying the GAAR will operate as follows:
    • Stage one: Written notification to a taxpayer that a designated HMRC officer considers that the GAAR may apply (with reasons and proposed counteraction), and inviting a written response.
    • Stage two: Written response from the taxpayer.
    • Stage three: If the taxpayer provides a written response, the designated HMRC officer must consider the response. If the officer is still of the view that the GAAR may apply, he or she must refer the matter to the Advisory Panel.
    • Stage four: The Advisory Panel will give its opinion to HMRC and to the taxpayer.
  • A "designated officer" would be an officer of HMRC who has been designated by the HMRC Commissioners for the purposes of the GAAR (this is aimed at ensuring consistency in the way the GAAR is used by HMRC).
  • If the advisory panel needs more information to make a decision it can refer the matter back to HMRC, though the panel will have no formal information powers.
  • The advisory panel will be drawn from experts in the relevant area, who will be under a duty of confidentiality.
  • Guidance on applying the GAAR will initially be drawn up by HMRC, but will be supplemented (on an anonymised basis) by reported decisions of the panel.
  • Should the matter reach the Tribunals or Courts, it is for HMRC to demonstrate how the tax arrangements are abusive. The Tribunals and Courts must take into account HMRC's guidance and any opinion of the advisory panel.

While the opinion of the advisory panel (being acknowledged experts in the area concerned) may help guide both parties as to how the GAAR should be applied to a particular situation, it is difficult to see what extra this might add to a dispute between taxpayer and HMRC that would not be offered by each party's advisers and the use of an alternative dispute resolution process. Beyond that, the place for final resolution of any dispute concerning application of legislation must be the Tribunals and Courts.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel= pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032113

1.3. HMRC's double tax relief programme for the period to March 2013

HMRC plan to begin negotiations on double tax agreements (DTAs) and Protocols with Japan, Portugal and Russia among others. They also plan to take forward work on DTAs and Protocols with Austria, Canada, Germany, Iceland, Kosovo, Panama and Turkmenistan. The plan is also to take forward work on TIEAs (tax information and exchange agreements) with Andorra, Macau, Monaco and Seychelles.

www.hmrc.gov.uk/taxtreaties/news/programme-2012-2013.htm

1.4. Scottish Land and Buildings Transaction Ta

The Scottish Parliament will have new financial powers from 2015 over taxes on land and property transactions and on disposal to landfill.

A consultation dealing with these devolved tax powers (the first of three) has been issued and is open for comment until 30 August 2012. The Scottish Government will consider its proposals for a Land and Buildings Transaction Tax for Scotland in the light of responses to the consultation paper, and then, in the autumn, introduce a Bill for the Scottish Parliaments consideration.

Later this year, the Scottish Government intends to consult on a tax on disposals to landfill, and also on tax management arrangements, covering issues that apply to all future devolved taxes like tax collection, the use of information, penalties for late payment or for tax evasion, and appeals.

The proposed structure of SDLT in Scotland from April 2015 and how it might be administered is set out in the document. In 2010/11 SDLT raised £330m in Scotland, split roughly equally between residential and non residential transactions. This level of collection and split between categories has fluctuated over the years 2007/08 to 2010/11 from £565m to £250m in total.

Two options for the rate structure are discussed for residential property and one for commercial property. All options are for a progressive system (so that the rate only applies to the consideration in the relevant band) in contrast to the existing 'slab' system of rates (where the rate in the band applies to the whole consideration). Indicative proposals of how the rates might work (although the consultation does not propose the rates set out in the examples) are:

www.scotland.gov.uk/Publications/2012/06/1301

2. Private Clients

2.1. Consultation on qualifying life assurance policies

In Budget 2012 the Chancellor announced the Government's decision to restrict the tax relief available for qualifying life insurance policies ("QPs") by limiting the amount of premiums payable into QPs for an individual to no more than £3,600 in any twelve month period. The rules are to take effect for QPs issued on or after 6 April 2013 and transitional rules will apply for policies issued from 21 March 2012 to 5 April 2013 inclusive. A Consultative Document has been issued setting out further detail about the intended implementation of the restriction and inviting comment from the life insurance industry and from other interested parties.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel= pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032117

2.2. Business investment relief for non-domiciled individuals on the remittance basis

HMRC has published a draft of the business investment relief regulations supported by a draft Explanatory Memorandum.

An individual who makes a qualifying investment must take appropriate mitigation steps (as defined in section 809VI ITA 2007) where a potentially chargeable event (as defined in section 809VH ITA 2007) occurs in relation to that investment. Failure to take such steps within the grace period (as defined in section 809VJ ITA 2007) will trigger a taxable remittance.

Section 809VJ(4) ITA 2007 provides that an officer of HMRC may agree in a particular case to extend the grace period allowed for an appropriate mitigation step in circumstances specified in regulations.

These Regulations prescribe the circumstances in which the grace period may be extended. Once approved it is expected they will come into force on a date in 2012 and have effect in relation to qualifying investments made on or after 6 April 2012.

www.hmrc.gov.uk/drafts/bir-regs-consult-draft.pdf

www.hmrc.gov.uk/drafts/em-bir-regs-consult-draft.pdf

3. PAYE and Employment matters

3.1. Consultation on compliance with RTI and the implications for late filing and penalties

A consultation has been issued for comment on compliance implications for Real Time Information and late filing and penalties. The consultation is open until 6 September 2012.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel= pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032115

3.2. HMRC's position following the Upper Tribunal decision in the case of ITV Services Ltd

HMRC Brief 19/12 sets out HMRC's position on whether self employed entertainers are regarded as employed for NIC purposes following the Upper Tier Tribunal's February 2012 decision in the case of ITV Services (www.tribunals.gov.uk/financeandtax/Documents/decisions/ITV_Services_Ltd_v_HMRC%20.pdf, see Tax Update 13 February 2012). The Brief includes the following comments:

HMRC's position going forward

"Actors" and "entertainers" were referred to specifically in Revenue & Customs Brief 10/11. To clarify, liability for Class 1 NICs arises in relation to all types of entertainers (for example, musicians, singers) engaged under contracts where the remuneration includes an element of salary (as defined in the Regulations).

HMRC has no plans to undertake concerted compliance activity in the media sector in respect of entertainers and the Regulations as a result of the ITV Services case. It will, however, continue to scrutinise those cases currently the subject of investigation and to apply its normal risk based approach to identifying cases which represent a high risk in terms of tax and/or NICs and it reserves the right to investigate such cases.

Where HMRC is undertaking, or undertakes, an investigation into an entertainer or media company, it will apply the law in terms of the Regulations as enunciated by the UT.

Retrospective application of the Upper Tribunal's decision

The extent to which HMRC will seek to apply the UT decision retrospectively will be determined by a number of different factors.

Written opinion previously given

Where HMRC has previously issued a written opinion that Class 1 NICs are not due in respect of a particular contract because HMRC did not consider that it provided for payment by way of salary, it will not seek from the party to whom that written opinion was given retrospective recovery of the unpaid NICs that were due and payable prior to 6 April 2011(unless HMRC has expressly advised an engager that NICs should be operated from an earlier date).

Extent of a written opinion

Where HMRC has previously provided a written opinion to an engager that Class 1 NICs are not due in respect of a particular contract, and that engager used an identical (other than for individual personal details) contract to engage other entertainers in the same production, HMRC will not seek arrears of Class 1 NICs due and payable prior to 6 April 2011.

No written opinion previously given

Where HMRC has not given a written opinion, then it reserves the right to seek retrospective recovery of any NIC arrears under its normal risk based approach, and subject to the provisions of the Limitation Act 1980.

ESM 4147 will be updated shortly to reflect the position following the UT decision.

Further information

Under the terms of its "Non-statutory clearance" service to businesses, should an engager have material uncertainty on the tax (or NICs) consequences of a particular contractual engagement, if appropriate, HMRC can provide its view of how the law applies to that contract.

Any such requests should be made by formal 'Non-statutory clearance' application to Large Business Customer Relationship Managers, Film & Production or TV Broadcasting Units as appropriate enclosing details of the particular engagement and a copy of the relevant (signed) contract.

www.hmrc.gov.uk/briefs/national-insurance/brief1912.htm

4. Business

4.1. Penalties and reliance on a third party

The First Tier Tribunal has considered the case of JR Hanson. This case concerned a taxpayer who had gains deferred into loan notes. After discussions with his adviser he was incorrectly advised that by investing in furnished holiday lettings he could hold over gains realised on disposal of the loan notes. The tax return was prepared by his adviser and initially showed the gains on the loan notes being subject to entrepreneurs' relief. After enquiry by HMRC, this was changed to a hold over claim, which HMRC pointed out was not possible. The conclusion of the case was that the taxpayer did take reasonable care to avoid inaccuracies in his tax return, and that the errors arose from incorrect advice given by his agent.

The case is a simple reminder that reliance on a third party, where that reliance was itself reasonable, can be grounds for not being charged a penalty for filing an incorrect return. This principal applies not just to the 'careless' penalties under the new Sch 24 provisions, but also the 'neglect' penalty under the old s95 TMA 70 penalty provisions (as per Rowland v HMRC [2006] SCD 536).

www.bailii.org/uk/cases/UKFTT/TC/2012/TC02000.html

4.2. Disincorporation relief

On 7 June 2012 HM Treasury issued a consultation on disincorporation relief following the Office of Tax Simplifications (OTS) final report in February 2012.

The consultation generally follows the format of the OTS recommendations and refers to "businesses looking to disincorporate".

The OTS suggested that the relief should only be available to trading companies that qualify as micro companies under EU rules and that do not have a company as a shareholder (a micro business for EU purposes is one with less than 10 employees and either turnover less than 2million or balance sheet total less than 2million). It recommended the relief should enable the disincorporation of land, goodwill and plant or machinery to shareholders without any immediate tax charges on the company or shareholders, subject to various conditions. They suggested if the relief were made available to property companies this could open up avoidance concerns.

The consultation document sets out the key policy questions as follows:

"If the Government were to introduce a disincorporation relief, key decisions would be: the scope of charges it covered; the size of business that would be eligible for the relief; and the lifetime of the relief before it is reviewed or brought to an end.

Scope of charges relieved

A simple disincorporation relief might remove the Corporation Tax charges to the company on the capital gain on the goodwill. With additional legislation, it would also be possible to extend this to charges to the company relating to plant and machinery and land, if the value of these assets and the likely tax charges were significant for the affected businesses.

A more comprehensive relief would cover charges arising on shareholders in respect of distributed assets. Providing relief for shareholders would require additional rules to ensure fairness between different taxpayers and prevent opportunities for abuse. This might include:

  • a targeted anti-avoidance rule to deal with any abuse from shareholders being exempt from Income Tax or CGT charges on disposal; and/or
  • rules to ensure that, while a charge is not applied when the assets are transferred to the shareholders, the right amount of tax is collected when the assets are eventually sold or disposed of by the self employed business. These rules might involve an adjustment to the recorded value of the assets when they are transferred on disincorporation.

Reflecting the above, the Government is particularly interested in establishing the commercial need and likely administrative requirements for a disincorporation relief which covered charges arising on shareholders. For example, the Government is interested in how many of the smallest businesses would face significant charges arising on the shareholders on disincorporation; and for this part of the relief, what additional rules might be required - both to calculate the relief and ensure it is not open to abuse.

Size of business eligible

OTS survey evidence suggested the smallest businesses would be more likely to be interested in a disincorporation relief, for example those with a turnover in the range of £20,000 to £30,000. Its final recommendations suggested, for practical reasons, to use a familiar definition, that the relief should be open to companies meeting the EU definition of a micro-company1.

An alternative eligibility threshold for a disincorporation relief would be the VAT registration threshold of £77,000. This would also capture those businesses identified by the OTS surveys as most likely to disincorporate and could help reduce the scope for abuse of the relief.

Lifetime of the relief

The OTS recommended introducing a disincorporation relief for five years, after which it would be reviewed. The Government is interested in views on this proposal and the merits of shorter or longer life spans.

Overall, the Government is interested in how effectively a tax relief, of the sort outlined above, might reduce the barriers to disincorporation, how well it meets the criteria set out in Chapter 2 and the priority respondents place on this reform in the context of wider policy changes."

www.hm-treasury.gov.uk/consult_disincorporation_relief.htm

www.hm-treasury.gov.uk/d/consult_disincorporation_relief_070612.pdf

www.hm-treasury.gov.uk/d/ots_small_business_tax_review_disincorporation_280212.pdf

4.3. Senior accounting officer rules

HM Revenue & Customs (HMRC) has refreshed its guidance concerning the application of the Senior Accounting Officer (SAO) rules.

Changes have been made to every section of the guidance. Although the terminology and structure has changed, there are few significant changes in policy. Specifically, the main updates in terms of HMRCs view are in respect of:

  • The application of SAO rules during insolvency procedures. HMRC now believes that the SAO rules do apply in most cases where insolvency procedures were underway (see SAOG 11100+ and 15200).
  • The meaning of the turnover test for banks and insurance companies. HMRC is now of the opinion that the word 'turnover' takes its meaning from the Companies Act definition, and the test should be applied to all companies including banks and insurance companies (see SAOG 11232).
  • HMRC no longer believes that companies are only within the SAO rules in relation to their UK activities (see SAOG 11210).
  • HMRC now believes that there are no confidentiality/disclosure bars to prevent the disclosure of a late or the non-provision of an SAO certificate to a company (see SAOG 16500, 16600, 16610 and 16620).

HMRC will not consider charging penalties where companies and SAOs have followed previous guidance for any period up to the first period commencing after the publication of this revised guidance. Additionally, HMRC will apply a light touch period to any companies that are brought into the SAO regime by its changed interpretation for the first period commencing after publication of the guidance - along the same lines as the 'light touch' approach that was applied when the regime was introduced. Finally, HMRC will not charge any penalties for previous periods where one would seem to be due under the previous guidance, but which would not be due under the revised guidance.

Where HMRC's view has not changed there has been no need to update the content of the guidance and HMRC would expect companies and SAOs to continue to apply the SAO rules.

www.hmrc.gov.uk/briefs/company-tax/brief1612.htm

www.hmrc.gov.uk/manuals/saogmanual/index.htm

4.4. Code of practice on tax for banks

HMRC has published further guidance on the terms 'promote' and 'facilitate' used in the code of practice on tax for banks. It is aimed at assisting banks understand the boundary between transactions which fall within the ambit of the Code of Practice (e.g. where the bank is acting as promoter - 'promote') and those which are not covered by the Code of Practice (e.g. because they represent normal banking services or provided on standard market terms - 'facilitate').

Extracts from that guidance include:

HMRC's view is that that the Code of Practice will cover transactions (and should therefore be brought within a bank's Code of Practice governance process) where either:

  • The bank has been actively promoting arrangements which have an impact on the tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements
  • The bank is acting in conjunction with a 3rd party promoter who is marketing arrangements which have an impact on the tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements. For example, this would include the situation where a bank agrees with a promoter to provide finance to participators in a marketed avoidance scheme and does so with some knowledge of the effect of that avoidance scheme.
  • The bank actively engages with a customer to design or tailor a financial structure or transaction which has an impact on the tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements.
  • The bank is providing lending or other facilities to a customer on terms which vary significantly from standard market terms, either in respect of the fees (eg incorporate an element of the tax advantage sought, or are significantly above market rates) or the structure of the facility provided and the bank has some knowledge about the tax effect of the transactions or arrangements. This would not capture standard commercial leasing arrangements.

HMRC does not consider that the Code of Practice would in the normal course cover transactions where the bank is providing lending facilities to customers which do not vary from standard market terms. In circumstances where a bank is facilitating (not designing/tailoring) a one-off, bespoke, transaction which may not have directly comparable market rates, HMRCs view is that this will not be covered by the Code of Practice unless, for example, the fees include an element of the tax advantage sought. Therefore a bank is not obliged to enquire into lending transactions or other banking services where these are on standard terms or where non standard terms are not obviously to allow a client to achieve an unintended tax benefit, if it is neither promoting (or acting in conjunction with a 3rd party promoter) nor taking an enhanced fee or margin linked to the customers tax benefit.

www.hmrc.gov.uk/thelibrary/taxation-banks.pdf

4.5. Amendments to Finance Bill 2012

Further amendments have been proposed to Finance Bill 2012 as follows:

  • Controlled foreign companies and foreign permanent establishments (clause 180 Sch 20)

www.hm-treasury.gov.uk/d/financebill2012_amendments_cl_180_sch20.pdf

  • Anti-avoidance re SEIS EIS and VCT measures

www.hm-treasury.gov.uk/d/financebill2012_amendments_cl_38-40_sch6-8.pdf

  • Employer asset-backed pension contributions (clause 48 Sch 13)

www.hm-treasury.gov.uk/d/financebill2012_amendments_cl48_sch13.pdf

www.hm-treasury.gov.uk/d/financebill2012_amendments_cl_48_sch13_part2.pdf

  • Solvency II & the taxation of life insurance companies (clauses 55 to 179 Sch 16 to 19)

www.hm-treasury.gov.uk/d/financebill2012_amendments_cl_126_129-130_sch16-17.pdf

4.6. Draft guidance on asset backed contribution rules in Finance Bill 2012

HMRC has published draft guidance to cover the changes in Finance Bill 2012 on asset backed pension contributions.

www.hmrc.gov.uk/pensionschemes/abc-guidance.pdf

4.7. Capital allowance s198 elections for plant or machinery that is a fixture in a building

HMRC's guidance on detail to include on capital allowance s198 elections is at CA26850. This indicates a required split between integral and non-integral features, and a list of assets within those categories.

When considering s198 elections (whether as purchaser or vendor), in addition to categorising fixtures between these two headings the following points may be worth considering:

  • Ensure the election is clear that the values allocated to the two categories (integral and non-integral features) covers all the items listed under each heading;
  • If it is possible to get an apportionment of the values on an asset by asset basis (rather than just a total for each heading), then so much the better;
  • If the building was owned by the current owner pre 1 April 2008 (so that there may be some assets included in the transaction which would qualify for capital allowances for a new owner, but for which the vendor could not claim, such as integral features purchased pre Apr 2008 that did not meet the general pool requirements at the time of purchase), ensure the list on the s198 election is clear as to what is and is not included, so that it is possible for the purchaser to make an unrestricted claim for capital allowances plant previously not qualifying which now does so for the purchaser.

4.8. Amusement Machine Licence Duty - Machine Games Duty transition

HMRC has issued a Brief concerning the transition to Machine Games Duty (MGD) which begins on 1 February 2013. It will replace Amusement Machine Licence Duty (AMLD). MGD will be charged on the net takings from the playing of machine games. These are games where customers pay to play a game on a machine for the chance of winning a cash prize, which is greater than the cost to play. Where MGD is payable, it will replace both Amusement Machine Licence Duty (AMLD) and VAT on games played on machines.

From 1 February 2013, if someone is responsible for premises where machines are provided for play, they will have to pay MGD. A person is responsible for premises if they hold certain Gambling Commission or local authority licences or permits for those premises. They also may be responsible for premises in other circumstances. Where they are not responsible for the premises, but are paying for one or more Amusement Machine Licences for machines on those premises, they may wish to make sure that the responsible person is aware of MGD and how this will affect them. They may also wish to consider if MGD will have an impact on the commercial arrangements between the parties.

Machines provided for play must be licensed under the AMLD regime up to and including 31 January 2013, but the licences will be automatically cancelled from 1 February 2013. Those affected will therefore need to consider how they are going to take forward their renewal application so that they comply with the licensing obligations.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel= pageExcise_ShowContent&id=HMCE_PROD1_032112&propertyType=document

4.9. Partnership return and penalties for late filing

The First-tier Tribunal has recently considered the appeal by Eamas Consulting LLP ("Eamas") against the first and second fixed penalties imposed for the late filing of the partnership tax return for the year ending 5 April 2008.

In a decision released on 6 July 2010, the First-tier Tribunal (Tax Chamber) dismissed Eamas' appeal on the grounds that Eamas had no reasonable excuse for its default (see [2010] UKFTT 308 (TC)). Eamas appealed to the Upper Tribunal (Tax and Chancery) and, by consent on 26 May 2011, the Upper Tribunal remitted the appeal to the First-tier Tribunal to be decided afresh, as a default paper case, by a differently constituted tribunal panel.

The principal question was whether Mr Eames' statement that he posted the partnership return "as soon as I received it in 2008" was acceptable.

Although Mr Eames had produced no certificates of posting for the return the Tribunal accepted his statement that the return was properly posted for the following reasons:

(1) Mr Eames's evidence was that the return was a NIL return. This was reflected in the duplicate return and HMRC had not suggested that the return was inaccurate. Given that fact, it was reasonable to assume that Mr Eames was able to deal with it expeditiously as he claimed and may well have seen no point in retaining a copy of the return.

(2) Mr Eames' evidence was that the NIL return was reflected in both his and his son's personal selfassessment returns that were submitted around the same time or shortly after the partnership return was posted. HMRC admitted that these returns were received in good time before the deadline for paper returns.

(3) Mr Eames said with some force, that it does not make sense that he would complete and return a complicated personal tax return (well before the deadline) but would not return an easy nil return. The contrary point might be made that Mr Eames would understand the absolute need to return his personal self-assessment return but might think it unnecessary to submit a nil return. On the other hand, Mr Eames stated that he was well aware of the need to send back a nil return. Furthermore, in 2009 when he evidently did not receive a partnership return in the ordinary course he requested one even though the 2009 return was also a nil return.

(4) Contrary to what may appear from the first decision of the First-tier Tribunal in this matter, Mr Eames disputed the penalty notice from the outset and the delay (if any) in submitting a duplicate return appears to be due to some combination of HMRC's response time and the number of different HMRC offices dealing with the tax affairs of Eamas and Mr Eames. Apart from Maidstone, Ipswich and Leicester, Mr Eames also appears to have had some involvement with HMRC in Bradford, Salford, Londonderry and London NW1. This is not as extraordinary as at first sight may appear and Mr Eames (while quite reasonably expressing the hope that his tax affairs might be dealt with by a single HMRC office) fairly recognised that HMRC is a large organisation and that more than one office might inevitably have to be involved in these matters. Nevertheless, despite the plethora of HMRC offices, Mr Eames was able immediately to identify the office to which he had posted the partnership return. HMRC had not suggested that it was the wrong office or that the address that Mr Eames supplied was incorrect. Throughout he recognised and acknowledged the need to comply with his tax obligations and dealt with this issue diligently and expeditiously. There was no suggestion in the papers that he might not have dealt with the partnership return precisely as he said he did.

The Tribunal concluded that a properly stamped and addressed tax return would be treated as delivered in the ordinary course of post. Even without that presumption, having accepted that Mr Eames posted the return as he claimed, the Tribunal considered that he had a reasonable excuse for any period of default and that the appeal should be allowed.

www.bailii.org/uk/cases/UKFTT/TC/2012/TC02009.html

4.10. OECD discussion drafts and updates on transfer pricing

OECD releases a discussion draft on the transfer pricing aspects of intangibles

In 2010, the OECD announced the commencement of a project on the transfer pricing aspects of intangibles. A scoping paper was published on the OECD website for public comment. In the interim three public consultations have been held with interested commentators. At the business consultation held in November 2011, representatives of the business community suggested that it would be helpful if the OECD were to release interim drafts of its work as it progresses for further detailed public comment.

This document, prepared by OECD Working Party No. 6, is such an interim draft. It contains: (i) a proposed revision of the provisions of Chapter VI of the OECD Transfer Pricing Guidelines; and (ii) a proposed revision of the Annex to Chapter VI containing examples illustrating the application of the provisions of the revised text of Chapter VI.

Written comments on this Discussion Draft are requested to be provided by 14 September 2012.

www.oecd.org/dataoecd/39/61/50526258.pdf

OECD Working Party No. 6 releases a discussion draft on the revision of the Safe Harbours section of the Transfer Pricing Guidelines

Working Party No. 6 of the OECD Committee on Fiscal Affairs has released a discussion draft on safe harbours as part of its project to improve the administrative aspects of transfer pricing. This project started with a survey of the transfer pricing simplification measures in existence in OECD and non-OECD countries and led WP6 to review the current guidance on safe harbours in Chapter IV of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ("TPG").

The current guidance in the TPG has a somewhat negative tone regarding transfer pricing safe harbours. This negative tone does not accurately reflect the practice of OECD member countries, a number of which have adopted transfer pricing safe harbour provisions. Also, the current guidance is largely silent with regard to the possibility of a bilateral agreement establishing a safe harbour, even though some countries have favourable experience with such bilateral agreements.

This discussion draft includes proposed revisions of the section on safe harbours in Chapter IV of the TPG and associated sample memoranda of understanding for competent authorities to establish bilateral safe harbours. Interested parties are invited to send comments on this discussion draft before 14 September.

www.oecd.org/dataoecd/39/46/50514053.pdf

OECD invites comments on certain transfer pricing timing issues

The OECD Secretariat invites public comments on certain timing issues related to transfer pricing, in connection with the work of Working Party No. 6 on intangibles and other projects. Modifications to the Transfer Pricing Guidelines on these issues have been discussed by Working Party No. 6 delegates. Those modifications are not agreed by all countries. However, they raise certain difficult issues on which comment by the business community is specifically requested by the Secretariat.

The paragraphs under consideration highlight the fact that OECD member countries follow two different approaches in applying the arm's length principle. The existence of these different approaches to applying the arm's length principle raises a number of difficult issues. It would be helpful to the Secretariat to have comments on the practical problems caused by the existence of these two different approaches.

Interested parties are invited to send comments on this discussion draft before 14 September.

www.oecd.org/dataoecd/41/54/50519380.pdf

OECD updates Multi-Country Analysis of Existing Transfer Pricing Simplification Measures

The OECD Committee on Fiscal Affairs launched in 2010 a project to improve the administrative aspects of transfer pricing including a review of techniques that may be implemented by countries to optimise the use of taxpayers' and tax administrations' resources. A survey was conducted as part of this project. The main findings from the survey were released in June 2011 based on the responses provided by 33 OECD and non- OECD countries. The OECD subsequently invited more countries to participate in this survey. Eight countries responded to this invitation and a total of 41 OECD and non-OECD countries provided detailed responses concerning measures currently existing in their domestic law to simplify the application of their transfer pricing rules. This document presents updated analysis of existing transfer pricing simplification measures as of 1 January 2012.

The survey described in this document focused specifically on simplification measures countries have adopted as part of their transfer pricing regimes. These include not only safe harbours but also measures such as less stringent documentation requirements, alleviated penalties, streamlined procedures, etc. This document contains both an analysis of the key findings from the survey and a compilation of the country responses. Some of the key findings are;

  • More than 80% of the respondent countries have transfer pricing simplification measures in place,
  • Almost 75% of available simplification measures are directed to SMEs, small transactions and low value added intra-group services,
  • Out of 33 respondent countries which have simplification measures, 16 countries have safe harbours, i.e. simplified transfer pricing method, safe harbour arm's length range/rate, safe harbour interest rate, and exemption from transfer pricing rules/adjustment,
  • Of those 16 countries, 10 countries have simplified transfer pricing methods, safe harbour arm's length range/rate and safe harbour interest rates.

www.oecd.org/dataoecd/42/33/50517144.pdf

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