It never gets any easier. As we emerge from both BREXIT and the pandemic have you considered:
Cross border dividends, royalties and interest payments between UK and EU companies
Prior to 1 July 2021 the UK could benefit from the EU Parent Subsidiary Directive and the EU Interest and Royalties Directive but these are no longer part of UK law. It is therefore necessary to consider the provisions of any relevant Double Tax Treaty as to whether withholding tax could apply on cross border payments and/or whether advance clearance should be obtained to benefit from a reduced or nil rate of withholding tax. Withholding tax could in certain situations prove to be a significant cost to the business so it’s important to ensure actions are taken to prevent unnecessary tax leakage.
Have staff members worked differently during the pandemic – what are the tax risks?
With working from home arrangements during the pandemic have any of your key personnel worked from a base overseas?
The OECD have issued guidance that an employing company would not normally be considered to have a permanent establishment/PE when the working from home arrangements are temporary in nature from a home office. The ability to agree and conclude contracts during the temporary arrangements would likely not be sufficiently “habitual” to create a dependent agent PE.
Could any home working arrangements continue beyond the pandemic such that they become a permanent and ongoing feature which would then increase the chances of a PE?
There are always shades of grey and a Tax Authority will have the final say on how they view any changes and the tax implications arising as a result. The impact on employees’ personal tax positions should also not be overlooked. Different Tax Authorities around the globe will have different views on what they consider as temporary; from a short window of several months through to potentially December 2021 or beyond. Have you reviewed and documented any home working arrangements and assessed tax risks? This may prove very helpful in the event of a future Tax Authority enquiry.
Have you changed your business model and/or supply chains post BREXIT?
Do your transfer pricing policies reflect these changes and have you brought your associated documentation up to date? How will you ensure appropriate profit apportionment across your Group?
Do your intercompany financing agreements include interest rates that reference LIBOR?
LIBOR is due to be abolished from the end of 2021 and the use of alternative interest rate benchmarks is steadily increasing. There have been changes in the way banks fund themselves, leaving few transactions in the underlying market LIBOR measures. This therefore means that LIBOR is no longer a reliable benchmark for interest rates. In sterling markets, the primary alternative is SONIA, published by the Bank of England.
Is it time to review and update your intragroup loan documentation? If LIBOR is referenced, then it’s time to find an alternative interest rate measure and document this for your intragroup financing arrangements.
UK Transfer Pricing documentation – is your documentation fit for purpose?
The UK Government consultation into Transfer Pricing documentation closed in June 2021 and we await further announcements. The proposals include a requirement for businesses to maintain specific standardised documentation which must be provided to HMRC on request and also an additional annual filing which discloses details on material cross border transactions with related parties.
For more information on any of the areas above please contact: