Midweek Tax News

The UK's accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force on 15 December. The CPTPP is a free trade agreement (FTA) between 12 countries (including the UK).

From 15 December, UK traders will be able to trade under the agreement's preferential conditions with CPTPP parties that have ratified the agreement – Japan, Singapore, Chile, New Zealand, Vietnam, Peru, Malaysia and Brunei. From 24 December 2024, this will further include trade with Australia. The UK has existing trade deals with nine of the eleven CPTPP members; however the CPTPP is the first trade agreement that the UK has with Malaysia and Brunei.

Further details on the CPTPP and what it means for UK traders can be found in our global tax alert.

On 10 and 11 December, the Committee of the whole House debated Finance Bill provisions relating to capital gains tax rates and relief, oil and gas, VAT on private schools and SDLT. No amendments were made. The remaining clauses will be considered by a Public Bill Committee by 4 February. Report stage and third reading (which constitutes substantive enactment for accounting purposes) will follow Committee stage but a date for these has not yet been set.

On 16 December, in a written statement to the House of Commons, Rachel Reeves confirmed that she has requested that the Office for Budget Responsibility prepare an economic and fiscal forecast for publication on 26 March 2025. Ms Reeves stated that she will respond to the review in a Parliamentary statement. She noted that this was in line with her commitment to deliver only one major fiscal event per year.

In Blackfriars Hotel (UK) Holdings Limited (BHHL) the First-tier Tribunal has considered the application of the anti-avoidance rules applicable for carried forward losses in s730G CTA 2010. BHHL is a holding company owning shares in two subsidiaries: Blackfriars Hotel Limited (BHL) and The Terrace Hotel Limited (TTHL). BHHL had accumulated carried-forward non-trading loan relationship deficits, which had arisen as a result of interest incurred on a third-party bank loan.

In December 2015, BHHL made new intercompany loans to the two subsidiaries. BHHL sought to use its carried-forward loan relationship deficits against its profits from 2016 to 2019, which HMRC denied under section 730G. Section 730G prevents companies from deducting carried forward losses from “relevant profits” that arise from tax arrangements designed to avoid tax.

The issue to be considered in this case was whether s730G applied in respect of “arrangements” comprising the steps involved in making the new loan made to BHL. Specifically, the question was whether the first of the five conditions for the application of s730G (condition A) was met – broadly, this condition would be met if there were “relevant profits” which arose “as a result of” tax arrangements, and, absent s730G, the company would be able to deduct carried-forward losses against these “relevant profits”.

With regard to the meaning of “relevant profits”, the Tribunal rejected BHHL’s argument that s730G could only apply if the entirety the company’s profits in an accounting period arise as a result of tax arrangements. In the Tribunal’s view, on a purposive construction of s730G, the provision applies wherever a company has profits which result from “tax arrangements”, even if it has other profits.

The Tribunal then addressed the question whether there were in this case any “relevant profits” – i.e. profits “arising from” the tax arrangements concerned. BHHL argued that the test required a relationship of direct causation between the arrangements and the profits, and that, if profits have more than one cause, then s730G cannot apply. The Tribunal concluded that, in order for profits to be “relevant profits”, tax arrangements must be an “efficient cause” of those profits, but they need not be the sole or even the dominant cause of them.

The Tribunal went on to consider the question of how to determine how much of the taxable profits of BHHL for the period concerned met the definition of “relevant profits” (such that the carried-forward non-trading deficit could not be set against them). It concluded that the correct approach was not to try to isolate particular items in the overall calculation of profit and build up to a calculation of the relevant profits. Instead, it was necessary calculate what BHHL’s profits would have been if the tax arrangements had not been implemented, and compare that figure with BHHL’s actual profits for the same period. Since in this case there would have been no profits if there had been no tax arrangements (in fact the company would have generated a non-trading deficit), all BHHL’s profits in the period concerned were “relevant profits” to which s730G applied.

The Draft Welsh Budget was announced on 10 December in a written statement from Mark Drakeford, the Minister for Finance. No changes will be made to Welsh rates of income tax. With regard to land transaction tax (LTT), the higher residential rates are increasing by one percentage point across all bands. Regulations giving effect to this change came into force on 11 December. Taxpayers who have already exchanged contracts will pay the former rates so long as they comply with the relevant transitional rules. No other LTT changes are proposed in this Budget, however in the New Year, draft regulations will be laid to make changes to the multiple dwellings relief (MDR) available on the purchase of two or more dwellings in Wales.

The standard rate of landfill disposals tax (LDT) will increase to £6.30 per tonne from 1 April 2025 in line with the increase to the UK Government’s equivalent landfill tax. The fourth annual Tax Policy Report was also published.

As reported in last week’s Midweek Tax News, EU Member States have adopted the Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER). The Directive will introduce a common tax residence certificate that tax-paying investors will be able to use in order to benefit from the fast-track procedures to obtain relief from withholding taxes. Member States will introduce either a “relief-at-source” procedure where the relevant tax rate is applied at the time of payment of dividends or interest, and/or a “quick refund” system where the reimbursement of overpaid withholding tax is granted within a set deadline. There will also be standardised reporting obligations for financial intermediaries, including national registers.

A global tax alert is now available which provides further details.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

United States: The US Treasury Department has released final regulations under IRC Section 987, detailing income and currency gain/loss rules for qualified business units, alongside proposed regulations offering simplified methods for computing unrecognised IRC Section 987 gain or loss.

Bulgaria: Bulgaria will require businesses to submit SAF-T files starting in 2026, aligning with the OECD standard for digital tax administration.

Cyprus: Cyprus has transposed the EU Global Minimum Tax Directive into its domestic law. The law will be effective from 31 December 2023 for the income inclusion rule (IIR) and 31 December 2024 for the under-taxed profits rule (UTPR) and domestic minimum top-up tax (DMTT), with transitional safe harbours available.

Germany: The German Ministry of Finance (MoF) has published the long-awaited final decree regarding the application of the German anti-hybrid rules. While the draft decree issued in July 2023 did not provide detailed practical guidance and mostly covered basic structures, the final version clarifies a couple of open questions in terms of the relevance of a controlled foreign corporation (CFC) regime and the application of the dual-inclusion exemption.

Gibraltar: Gibraltar has proposed a Global Minimum Tax Act effective from fiscal years starting 31 December 2023, introducing a 15% domestic top-up tax aligned with OECD BEPS Pillar Two rules.

Italy: Italy has introduced a penalty protection regime for tax-hybrid mismatches, requiring compliance with certain documentation requirements to mitigate penalties if a higher tax is assessed as a result of hybrid mismatches.

Luxembourg: On 11 December 2024, the Luxembourg Parliament approved two legislative proposals containing certain individual income tax, corporate income tax, net wealth tax and fund taxation measures. This alert considers the measures affecting corporate taxpayers.

Canada: Digital platform operators must file 2024 information returns and provide the same information to reportable sellers by 31 January 2025, as required under Canada's new reporting rules implemented through Bill C-47.

Canada: Large businesses meeting specific thresholds in respect of 2022, 2023 or 2024 must register for Canada’s digital services tax (DST) by 31 January 2025.

Egypt: Egypt has reintroduced provisions for handling tax disputes through the ‘Dispute Resolution Committee’. The committee will be accepting new requests and addressing pending disputes until 30 June 2025.

The December edition of PE Watch, EY’s summary of the latest international developments regarding permanent establishments, is available. This edition highlights the European Commission's referral of Germany to the CJEU in relation to the German rules under which resident companies are able to defer capital gains, and Italy's clarifications on the Investment Management Exemption regime, addressing independence requirements, transfer pricing, and qualifying documentation.

The final TradeWatch of 2024 looks at some key trends and themes that are impacting trade now, including trade protection measures, trade technology and trade controversy. This edition also focuses on the life sciences sector and briefly looks ahead to identify themes that are likely to continue to dominate the trade agenda in 2025. The publication also includes a list of EY Global trade specialists around the world, recent trade-related news and alerts and information about webcasts and podcasts on topics of general interest to trade professionals.

The Online Safety Act 2023 (OSA) is a UK law which protects children and adults online. It introduces a range of new requirements for in-scope online services. As the new rules start coming into force from December 2024, it is crucial for service providers to understand their obligations and take immediate action. More detail on this topical issue for the TMT sector can be found here.