Monday, 11 April 2016

UK Budget and Finance Bill 2016

The UK Chancellor of the Exchequer delivered his Budget on March 15, 2016. The accompanying Finance Bill was published on March 24.

A new 'Business Tax Roadmap' sets out the government's plans for business taxes through 2020 and beyond.  It contains a number of proposals in a range of tax policy areas, including the UK's response to recommendations from the OECD's base erosion and profit shifting (BEPS) action plan.

Many of the measures affecting multinational groups, such as restrictions on interest deductibility and the introduction of anti-hybrid rules, had already been announced.  However, there were some surprises, including a further reduction in the corporation tax rate and new rules on the use of loss carryforwards.

There will be a further 1% cut in the rate of corporation tax, which will fall from 19% to 17% (previously 18%) in April 2020. This cut will ensure that the UK has the lowest corporation tax
rate in the G20 and is intended to encourage inward investment.

BEPS-inspired measures

Controlled foreign companies. The government has confirmed that no amendments to the CFC rules are being considered as a result of the BEPS project.

Patent box. Finance Bill 2016 includes legislation to amend the patent box regime to ensure that it is consistent with the nexus approach. This will make the lower patent box tax rate dependent on, and proportional to, the extent of research and development expenditures incurred by the company claiming relief. The new rules take effect July 1, 2016.

Transfer pricing guidelines. Changes to OECD transfer pricing guidelines resulting from the BEPS
project will be incorporated into UK law for accounting periods beginning on or after April 1, 2016.

Country-by-country reporting. Final regulations implementing the OECD’s recommendations for
country-by-country reporting (CBCR) were published on February 26, 2016. However, the Roadmap notes that the UK believes the OECD recommendations do not go far enough to address transparency
and that the UK will push for public CBCR on a multilateral basis.

Multilateral instrument. The UK is chairing the group of over 90 countries that is developing a multilateral instrument to allow countries' treaties to be updated quickly and efficiently for BEPS
changes. Work is on track and the instrument is expected to be ready for signature by the end of 2016.

Dispute resolution. The UK has committed to adopt and implement mandatory binding arbitration and is now working with 19 other countries to develop a mandatory binding arbitration provision as
part of the negotiation of the  multilateral instrument described above, as well as implementing other dispute resolution changes in the multilateral instrument.

Source & more info: PwC