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Approved Changes (2)

United Kingdom

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UK Budget 2015 Delivered

UK's Chancellor of the Exchequer George Osborne delivered Budget 2015 on 18 March 2015. The measures included in the Budget are generally in line with those announced in the Autumn Statement 2014 delivered in December 2014. Key measures are summarized as follows.

Diverted Profits Tax

It is confirmed that the Diverted Profits Tax, known as the "Google" tax, will apply from 1 April 2015. The tax will apply at a rate of 25% on profits of a foreign company deemed to have been diverted from the UK when the company has artificially avoided having a permanent establishment in the UK, or when a UK or foreign company uses entities or transactions that lack economic substance in order to create a tax advantage.

Following consultation, the implementing legislation has been revised to narrow the notification requirement, and to clarify the rules for giving credit for tax paid, the operation of the conditions under which a charge can arise, specific exclusions, and the application of the tax to companies subject to the oil and gas regime. Exact details will be included in Finance Bill 2015.

CbC Reporting

Legislation will be introduced in Finance Bill 2015 giving the UK the power to implement the Organization for Economic Co-operation and Development (OECD) model for country-by-country reporting, which has been developed as part of the OECD Base Erosion and Profits Shifting (BEPS) Project. The new rules will require multinational enterprises to provide high level information to HMRC on their global allocation of profits and taxes paid, as well as indicators of economic activity for each tax jurisdiction in which they do business.

R&D Tax Credits

The rate of the above-the-line Research and Development Expenditure Credit (RDEC) is increased from 10% to 11%, and the rate of the credit for small or medium sized companies (SMEs) is increased from 225% to 230%, with effect from 1 April 2015.

In addition, qualifying expenditure for R&D tax credits will be restricted so that the costs of materials incorporated in products that are sold are not eligible.

Bank Tax Treatment

The utilization of loss carryforwards by banks will be limited to 50% of annual profits. The restriction will apply to carried-forward trading losses, non-trading loan relationship deficits, and management expenses. The restriction will take effect from 1 April 2015 and will apply to losses accruing prior to that date.

In addition, the bank levy rate is increased from 0.156% to 0.21% from 1 April 2015, and customer compensation expenses of banks will be made non-deductible for Corporation Tax purposes.

Tax Avoidance and Evasion

The government will lay the regulations to implement the UK’s Automatic Exchange of Information Agreements and adopt the updated EU Directive on Administrative Co-operation shortly after Budget 2015.

The government will introduce legislation, in a later Finance Bill, that will increase the deterrent effect of the General Anti-Abuse Rule (GAAR), by introducing a specific, tax-geared penalty that applies to cases tackled by the GAAR.

Corporate Income Tax

From 1 April 2015, the corporation tax rate is reduced from 21% to 20%.

Individual Income Tax

From 6 April 2015, the individual income tax rates and threshold are as follows:

  • up to GBP 31,785 - 20%
  • GBP 31,786 up to 150,000 - 40%
  • over GBP 150,000 - 45%

The basic personal allowance is increased from GBP 10,000 to GBP 10,600.

From 6 April 2016 the basic rate limit will be increased to GBP 31,900 and the basic allowance will be increased to GBP 10,800. From 6 April 2017 the basic rate limit will be increased to GBP 32,300 and the basic allowance will be increased to GBP 11,000.

Click the following link for the full UK Budget 2015, and an Overview of Tax Legislation and Rates including the tax measures to be legislated in Finance Bill 2015, and the measures to be legislated in a future Finance Bill, programme bills or secondary legislation.

United States

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U.S. IRS Publishes Notice Inviting Comment for 2015-2016 Guidance Plan

On 16 March 2015, the U.S. Internal Revenue Service published Notice 2015-27, inviting public comment on recommendations for items that should be included on the 2015-2016 Priority Guidance Plan.

The Priority Guidance Plan is used by the U.S. Treasury Department's Office of Tax Policy and the IRS to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. It also sets out the schedule for routine publications for the plan year. The 2015-2016 plan will apply for the period beginning 1 July 2015 through 30 June 2016.

Click the following link for Notice 2015-27. Comments should be submitted by 1 May 2015.

Proposed Changes (1)

European Union

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European Commission Presents Tax Transparency Package Including the Automatic Exchange of Information on Cross-Border Tax Rulings

On 18 March 2015, the European Commission presented a Tax Transparency Package to counter corporate tax avoidance and harmful tax competition in the EU. The main element included in the Package is a legislative proposal to introduce the automatic exchange of information between Member States on their tax rulings. Under the proposal, each EU Member State would be required to provide quarterly reports to all other Member States on all cross-border tax rulings that have been issued. The report would cover a pre-defined, standard set of information, including:

  • Name of taxpayer and group (where this applies);
  • A description of the issues addressed in the tax ruling;
  • A description of the criteria used to determine an advance pricing arrangement;
  • Identification of the Member State(s) most likely to be affected;
  • Identification of any other taxpayer likely to be affected (apart from natural persons)

Member States would be required to acknowledge that a report has been received, and could then follow up on particular rulings for more details.

The proposal would be implemented through a Directive amending Council Directive 2011/16/EU (administrative cooperation in the field of taxation). It is proposed that Member States implement the required the laws, regulations and administrative provisions necessary to comply with this proposed Directive by the end of 2015, and apply the provisions from 1 January 2016.

Other Initiatives

Other tax transparency initiatives contained in the Package include:

  • Assessing possible new transparency requirements for multinationals, such as the public disclosure of certain tax information
  • Reviewing the Code of Conduct on Business Taxation in order to make it more effective in ensuring fair and transparent tax competition within the EU
  • Quantifying the scale of tax evasion and avoidance, including working with Member States to see how a reliable estimate of the level of tax evasion and avoidance can be reached
  • Repealing the Savings Tax Directive to create a streamlined framework for the automatic exchange of financial information and prevent any legal uncertainty or extra administration for tax authorities and businesses

Click the following links for the press release announcing the tax transparency package, the accompanying fact sheet, and the proposed tax ruling information exchange Council Directive.

Treaty Changes (3)

Albania-Macedonia

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SSA between Albania and Macedonia Signed

On 17 March 2015, officials from Albania and Macedonia signed a social security agreement. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Hungary-Moldova

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SSA between Hungary and Moldova has Entered into Force

According to recent reports, the social security agreement between Hungary and Moldova entered into force on 1 November 2014. The agreement, signed 28 November 2013, is the first of its kind between the two countries and generally applies from the date of its entry into force.

Ivory Coast-Portugal

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Tax Treaty between Ivory Coast and Portugal Signed

On 17 March 2015, officials from Ivory Coast and Portugal signed an income tax treaty. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.

Additional details will be published once available.

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