13th January 2016

CIOT - Corporate Tax Update

Paul Smith

Corporate Tax Update - Agenda 1.

BEPS Action Plans – UK Implementation • • •

2.

New UK Taxes • •

3.

Main Corporate Tax Changes

Autumn Statement & Draft Finance Bill 2016 • • • • •

5.

Diverted Profits Tax (“DPT”) Non-resident CGT (“NRCGT”)

Finance Acts 2015 New UK Taxes •

4.

Hybrid Mismatch Arrangements (BEPS 2) Interest Deductions (BEPS 4) Country by Country (“CbC”) Reporting (BEPS 13)

“Improving” Large Business Tax Compliance New Patent Box Apprenticeship Levy Entrepreneurs’ Relief & Impact of Liquidation Distributions from 6 April 2016 Transactions in Securities Changes from 6 April 2016

Other Tax Changes Impacting Corporates • •

‘B’ Share Schemes Entrepreneurs’ Relief JV Provisions

2

1 OECD’s Base Erosion & Profit Shifting (“BEPS”) – UK Implementation

3

1. BEPS – 15 Actions Around 3 Main Pillars

Extract of slide from OECD BEPS presentation on 16th September 2014

4

1. BEPS – Action 2: Hybrid Mismatch Arrangements

Objectives: Help prevent double non-taxation by eliminating the tax benefits of mismatches and ending: •

Multiple deductions for a single expense;

•

Deductions in one country with no corresponding income in another; and

•

Generation of multiple foreign tax credits for one amount of foreign tax paid.

UK Action: Replace existing anti-arbitrage rules with new Part 6A TIOPA 2010 – effective 1 January 2017 (Clause 33 Draft Finance Bill 2016)

Double Deduction cases: Primary response – deny deduction to parent; Secondary – deny deduction to hybrid entity (i.e. if the deduction is not denied in the parent jurisdiction). Deduction / non-inclusion cases: Primary response – deny deduction to payer; Secondary – tax receipt on recipient.

5

1. BEPS – Action 2: Hybrid Mismatch Arrangements D/NI: Deduction/non-inclusion cases: •

Hybrid Financial Instruments

•

Hybrid Transfers

•

Hybrid Entity Payers

•

Hybrid Entity Payees

DD: Double deduction cases: •

Hybrid Entity Payers

•

Dual Resident Companies

DD or D/NI ‘imported’ mismatch cases (i.e. where a mismatch is transferred into a 3 rd country): •

Hybrid Financial Instruments

•

Hybrid Entity Payers

•

Hybrid Entity Payees

6

1. BEPS – Action 2: Hybrid Mismatch Arrangements

Example: Hybrid financial instrument D/NI case • tax deduction for interest in UKCo • exempt “dividend” in NL/Lux

Lux or NL Co

1. Profit participating loan

Interest

UKCo

2.

Primary solution: - No deduction for interest expense in UKCo (draft s259CC TIOPA 2010) (or part disallowed if Lux/NL tax receipt at a tax rate lower than UK marginal rate – s259CB(9)) Defensive suggested solution: - Interest taxed in NL / Lux as ordinary income 7

1. BEPS – Action 2: Hybrid Mismatch Arrangements

Example: Hybrid financial instrument Applying the tests in draft s259CA TIOPA 2010 Lux or NL Co

A. B. Profit participating loan

Interest

C.

UKCo

D.

Yes, payments of interest are made under a financial instrument. Yes, UKCo is within the charge to corporation tax for the relevant period Yes, it is reasonable to suppose that the interest would be D/NI (i.e. a deductible / non-inclusion mismatch that is not attributable to a permitted reason within s259BF) Yes, UKCo & LuxCo/NLCo are related

8

1. BEPS – Action 2: Hybrid Mismatch Arrangements

Example: Hybrid Structure

US Equity & debt

Interest

D/NI case • Disregarded payment made by hybrid • tax deduction for interest in UK • no taxable income in US

UK HoldCo

1.

Primary solution: - No deduction for interest expense in UK (draft s259EC TIOPA 2010)

UK TradeCo

2.

Defensive solution: - Interest taxed in US as ordinary income

Equity

9

1. BEPS – Action 2: Hybrid Mismatch Arrangements

Example: Hybrid Structure Applying the tests in draft s259EA TIOPA 2010 US

A. Equity & debt

Interest

UK HoldCo

B. C.

D.

Equity

UK TradeCo

E.

Yes, payments of interest are made under an ‘arrangement’. Yes, UK HoldCo is a hybrid entity Yes, UK HoldCo is within the charge to corporation tax for the relevant period Yes, it is reasonable to suppose that the interest would be D/NI (i.e. a deductible / non-inclusion mismatch) Yes, UK HoldCo & US are in same group

UK Action: Replace existing anti-arbitrage rules - effective 1 Jan 2017 10

1. BEPS – Action 4: Interest Deductions

Current UK tax rules to limit deductible interest costs Transfer Pricing Thin Capitalisation Unallowable Purpose Anti-arbitrage Rules

Debt Cap

2017 ?

OECD Cap

11

1. BEPS – Action 4: Interest Deductions Objectives: •

… to develop recommendations regarding best practices in the design of rules to prevent base erosion through the use of interest expenses and other financial payments that are economically equivalent to interest payments.

•

Examples of “aggressive tax planning” by multinationals include the use of related-party and thirdparty debt to achieve excessive interest deductions or to finance the production of exempt or deferred income.

UK Action: •

18 Dec 2014: OECD published a Public Discussion Draft.

•

05 Oct 2015: OECD published Final Report.

•

22 Oct 2015: HM Treasury published an open consultation on the “Tax deductibility of corporate interest expense”.

•

14 Dec 2015: HMT/HMRC consultation event

•

14 Jan 2016: Deadline for responses to consultation - All responses will be considered for the business tax roadmap to be published “by April”.

•

01 Apr 2017: Likely earliest date of introduction of new UK rules

12

1. BEPS – Action 4: Interest Deductions OECD’s Best Practice Recommendations: •

De minimis threshold to remove “low risk entities” (optional)

•

Fixed Ratio Rule (not optional) – •

•

Net interest expense deductible up to …


€ 750m. •

i.e. > € 750m in the accounting period immediately preceding the reporting year.

•

OECD believes this threshold should leave only 10%-15% of MNE groups subject to the CbC reporting.

•

Threshold to be reviewed in 2020.

•

No special industry exemptions, nor for investment funds, non-corporate entities or non-public corporate entities.

•

Applies to all companies in a group.

•

Applies for accounting periods beginning on or after 1 Jan 2016.

•

First CbC reports to be submitted by 31 Dec 2017.

•

UK legislation already introduced by s122 FA 2015 & statutory instrument drafted.

16

1. BEPS – Action 13: TP Documentation – CbC Reporting – Model Template

17

1. BEPS – Action 13: TP Documentation – CbC Reporting – Model Template

18

1. Transfer Pricing - Final Thoughts HMRC focusing on smaller groups? HMRC’s Yield from Transfer Pricing Audits 2007 to 2008

2008 to 2009 2009 to 2010 2010 to 2011 2011 to 2012 2012 to 2013 2013 to 2014 £0

£1,000,000,000 Large Business Service

£2,000,000,000

Local Compliance

Source: HMRC Transfer Pricing Statistics – March 2015

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2 New UK Taxes

20

2.1 Diverted Profits Tax – “Double Irish” Structures

US

royalty

Irish IPCo Bermuda resident

•

IP rights held by Irish incorporated, Bermudan resident company

•

Irish incorporated but not Irish tax resident – “active trading exception” so its large profits are not taxed

•

Small trading profits in Irish OpCo – taxed at 12.5%

•

NL company used to eliminate WHT leakage

•

Tax on small spread in NL – taxed at 25%

•

No US sub-part F as all deemed to be one foreign co

licence

Irish OpCo sales

NL licence

royalty

UK services

21

2.1 Diverted Profits Tax (“DPT”) Overview: DPT applies “where multinationals use artificial arrangements to divert profits overseas in order to avoid UK tax” •

Two cases: 1.

Creation of intra-group expense (or diversion of intra-group income) where the arrangements lack economic substance, exploit a Tax Mismatch and it is “reasonable to assume” absent the tax benefit the expense would not have been incurred (or income would have been received in the UK);

2.

Avoidance of a UK permanent establishment (“Avoided PE”).

•

New Tax – applies from 1 April 2015

•

Tax rate = 25%

•

N/A - to SMEs (EC def’n: £10m 22

2.1 Diverted Profits Tax (“DPT”) Overview (ctd): •

Not self assessed but disclosure requirement

•

Not CT and not covered by treaties (per HMRC & HMT)

•

•

Not an equivalent (or substantially similar) tax; and

•

Only applies to arrangements designed to exploit provisions of treaties – so not obliged to give relief under international law.

Compliant with EU law: •

•

Directed at arrangements that are abusive or contrived and designed to erode the UK tax base – so tax is “proportionate”.

Computed on normal CT & TP principles except where recharacterisation rule applies

23

2.1 Diverted Profits Tax – Case 1 – Intra-Group Expense/(Income) 1. A “material provision” is made (licence) between UKCo and LuxCo; 2. Participation condition (Cos are connected);

Foreign Parent

HavenCo (IP)

Royalty (no WHT)

licence

3. Mismatch condition satisfied (i.e. Lux + Haven tax on royalty other benefits; and 2. it is reasonable to assume that transaction designed to secure tax reduction?

5. Material provision (i.e. licence) is not an excluded loan relationship. 6. Therefore DPT could apply.

24

2.1 Diverted Profits Tax The “insufficient economic substance” condition 1) & 2) Applies to a transaction or series of transactions where Financial benefit of tax reduction

>

Other Financial benefit

and

Reasonable to assume that transaction designed to reduce tax

and

Reasonable to assume that transaction designed to reduce tax

3) Or applies where Financial benefit of tax reduction

>

Contribution of economic value of functions / activities of entity staff

25

2.1 Diverted Profits Tax – Case 1 Example Adjustment A • DPT charge applies as if UKCo owns the IP directly. Foreign Parent

HavenCo (IP)

Royalty (no WHT)

licence

Royalty

LuxCo (or NLCo)

UKCo licence sales

Adjustment B • DPT charge applies as if royalty paid directly to HavenCo; – Inflated expense condition might apply so 30% expense disallowed. – WHT at 20% might apply on royalty payment treated as made to HavenCo.

26

2.1 Diverted Profits Tax Case 2: Avoided PE in UK – where: •

A non-resident Co (“Foreign Co”);

•

Another person (“A”, the “Avoided PE”)* carries on an activity in the UK in connection with supplies of services, goods or other property made by Foreign Co;

•

It is “reasonable to assume” that the activity of A or Foreign Co (or both) is designed to ensure that Foreign Co has no UK PE by reason of activities of A; and

•

Either or both of the following are met: • The Mismatch condition; or • The Tax Avoidance condition.

•

A and Foreign Co are not both SMEs

* This does not include the case where the activities of A are those of an agent of independent status (i.e. s1142 CTA 2010 applies except if the exemption is due to the investment manager exemption for brokers, IMs & Lloyd’s agents), nor where s1144 CTA 2010 (alternative financing arrangements) applies.

27

2.1 Diverted Profits Tax – Case 2 – Avoided PE

Parent Co

Foreign Co (in low tax country)

UK sales

Marketing services

A (in UK)

1. Foreign Co has no PE in UK due to A’s activities in UK – reasonable to assume? 2. A is not supplying services of an independent agent; and 3. Mismatch condition satisfied 1. Foreign Co & A are connected; 2. Tax payable other benefits); 4. Material provision (i.e. marketing services) is not an excluded loan relationship; and 5. A and Foreign Co are not SMEs. 4. Only need to consider anti-avoidance condition if mismatch is not satisfied. 5. Therefore DPT could apply.

28

2.1 Diverted Profits Tax – Case 2 – Avoided PE

Parent Co

Foreign Co (in low tax country)

Marketing services

A (in UK)

UK sales

Comment: Low taxed companies may not wish to set up a group marketing function in the UK in the future.

1. Foreign Co has no PE in UK due to A’s activities in UK – reasonable to assume? 2. A is not supplying services of an independent agent; and 3. Mismatch condition satisfied 1. Foreign Co & A are connected; 2. Tax payable other benefits); 4. Material provision (i.e. marketing services) is not an excluded loan relationship; and 5. A and Foreign Co are not SMEs. 4. Only need to consider anti-avoidance condition if mismatch is not satisfied. 5. Therefore DPT ... should not apply.

29

2.1 Diverted Profits Tax – Case 2 - Restructuring Options The DPT legislation is widely drawn but you may wish to consider the following: 1. Bring UK sales onshore (gulp!) – the UK CT rate is 20%, 5% lower than the DPT rate, resulting in an immediate tax saving (e.g. Amazon). 2. Keep UK-related sales revenues ≤ £10m.

3. Keep UK-related expenses ≤ £1m. 4. Wind-down UK operations. 5. Outsource current UK activities to an “independent agent”. 6. Persuade HMRC that it is not reasonable to assume that reduction of tax was a main purpose. Recent experience: HMRC’s initial questions were to check whether Foreign Co already had a PE in the UK under general principles and to look at the transfer pricing arrangements in place between Foreign Co and A.

30

2.1 Diverted Profits Tax – Timing & Administration • Co: Not self assessment but notification to be in writing within 3 months of end of relevant accounting period. • HMRC: Preliminary notice to be issued within 2 years after end of accounting period. • Co: 30 days to send written representations to HMRC. • HMRC: Charging Notice to be issued by Designated Officer within 30 days from end of the 30 day period that the Co had to make its reps. • Co: Pay tax within 30 days of issue of Notice - no postponement. • HMRC: 12 month review period starting on payment date during which a Supplementary or Amended Charging Notice can be issued. • Co: Appeal within 30 days following end of review period. 31

2.2 Non-resident Capital Gains Tax •

Applies to disposals of residential property in the UK by non-residents on or after 6 April 2015. However, ATED-related CGT takes priority over NRCGT where both apply.

•

NRCGT rate for companies = 20%; rate for others = 28%.

•

Exemption for diversely-held companies, widely marketed schemes, feeder fund schemes & life assurance businesses.

•

Unlike ATED CGT, no exemption for property development or where let to 3rd Party

•

Applies to “dwellings” including buildings suitable for use as a dwelling or in the process of being constructed or adapted for such use.

•

“Dwellings” exclude buildings occupied by students such as traditional halls of residence run and managed by an educational establishment and occupied by students during full time course of further education – but, in contrast to SDLT, “dwellings” do include purpose built student accommodation with at least 15 bedrooms and occupied by students for at least 165 days in the tax year – and so are within the scope of NRCGT.

32

3 Finance Acts 2015 – Corporate Tax Changes

33

3.1 Finance Acts 2015 - Key Corporate Headlines •

UK rate of corporation tax to reduce to 18% by 2020.

•

“Late paid interest” rules changed – CT deduction on accruals basis.

•

R&D incentives increased – 230% deduction for SME’s and 11% “above the line” credit for large companies.

•

Annual investment allowance to be set at £200k from 1 Jan 2016.

•

Bank surcharge 8% on profits & restriction on use of b/f losses from 1 April 2015

•

Restriction on use of losses against CFC charge.

•

No deduction for goodwill amortisation.

34

3.2 Finance Acts 2015 - Corporate Tax Rate Corporation Tax Rates v Income Tax Rates – 2006/07 to 2019/20 60 Corporate Tax %

Income Tax %

50 40 30 20 10 0

35

3.3 Annual Investment Allowance •

The AIA’s “yo-yo” history has led to uncertainty…. 500,000 400,000 300,000 200,000 100,000 0

£ GBP

Comment: 99% of companies expected to receive 100% relief for investment based on this level of AIA. 36

3.4 CFC Charge – Offsetting Losses Stopped •

Measures to prevent businesses offsetting losses against CFC charge.

•

The new measures remove the ability of the UK company to reduce or eliminate the charge by using losses brought forward, group relief or current year losses.

•

Interestingly, the losses may have been used if the profits had arisen in the UK (rather than being diverted from the UK).

•

Applies to profits of the CFC that arise on or after 8 July 2015.

Comment: May make the CFC “approved” Foreign Finance Company regime very expensive for typical UK multinational groups with most of their income generated through offshore subsidiaries. 37

3.5 Goodbye Goodwill Deductions • Since 2002 business have been able to obtain a corporation tax deduction for amortisation of goodwill. • A corporation tax deduction is no longer available. • Removes a big tax incentive of acquiring trade and assets over a share acquisition. • Applies to accounting periods beginning on or after 8 July 2015. • Acquisitions completed (or unconditional) before 8 July 2015 are not impacted by the new rules.

38

4 Autumn Statement and Draft Finance Bill 2016

39

4.1 Acceleration of Corporation Tax Payments •

Payment of corporation tax will be accelerated by four months for large groups.

•

Quarterly tax payments will be due in the 3rd, 6th, 9th and final month of the accounting period.

•

Only applies to large companies with taxable profits of £20m+.

•

The £20m will be divided by the number of companies in the group.

•

Due to apply for accounting periods starting after 1 April 2017.

•

Awaiting draft legislation.

40

4.2 “Improving” Large Business Tax Compliance Consultation Paper • Three elements or recommendations:  all large businesses will need to publish a tax strategy document. (now draft clause 65)

 same businesses encouraged to adopt a voluntary code of practice.

 a special measures regime aimed at businesses that persistently engage “unco-operative behaviour” that has caused or contributed to 2 or more unresolved significant tax issues (i.e. persistently engage in aggressive tax planning) and there is a reasonable likelihood of further such instances. (now draft clause 66)

• Approx 2,000 businesses are likely to be within the scope of the first two provisions above.

• “Qualifying” businesses are those with a turnover > £200m or a balance sheet > £20bn. 41

4.2 “Improving” Large Business Tax Compliance Publishing Annual Tax Strategy (draft clause 65) All large businesses (qualifying MNE groups, UK sub-groups, companies or partnerships) must publish on the internet an annual tax strategy setting out:  the approach of the UK group to risk management and governance arrangements in relation to UK taxation;

 the attitude of the group towards tax planning (so far as affecting UK taxation);  the level of risk in relation to UK taxation that the group is prepared to accept; and

 the approach of the group towards its dealings with HMRC.

Tax strategy to be published before the end of the current financial year. Non-publication of an identifiable tax strategy or incomplete content based on the 4 areas outlined above could lead to a financial penalty to the head of the UK group. 42

4.2 “Improving” Large Business Tax Compliance Voluntary Code of Practice • Banks will keep their existing Code of Practice • Separate to the UK Corporate Governance Code • Signing up to the COP seen as adopting a lower risk behaviour

• Defines acceptable behaviours as being those intended by Parliament • HMRC will not publish details of those signing up • But asked whether business should publish whether they have or not • HMRC will make exceptions for those who make inaccurate public statements 43

4.2 “Improving” Large Business Tax Compliance Special Measures Regime (now draft clause 66) • Businesses considered high risk given an opportunity, over 12 months, to change their behaviours before being put into special measures. • Once in Special Conditions will continue for 2 years. • Sanctions include treating inaccuracy in a document as due to failure to take reasonable care (penalties for error – i.e. can not use ‘reasonable care’ defence in penalty assessments). • HMRC may publish certain information about a UK qualifying group.

44

4.3 Patent Box • April 2013 - Patent Box regime introduced in the UK.

• October 2013 - EC Commission opined the regime breached the code of conduct for business taxation. (Issue: rewarded profits not research and did not require the innovative activity underlying a patent to take place in the UK) • December 2013 – Case against the UK fell away as a wider review of EU Patent Box regimes was launched – Ireland, Luxembourg, the Netherlands, Belgium, Gibraltar and Hungary all included in the probe. • March 2014 - European Commission asked the Treasury to explain the “patent box”.

• September 2014 – First BEPS reports released including transfer pricing of intangibles. • October 2015 - UK consultation on new Patent • December 2015 – Draft Finance Bill 2016 published – New Patent Box profits to be determined by reference to the company’s direct engagement in R&D. 45

4.3 Patent Box •

“Old” rules

• “New” rules

•

Introduced from 1 April 2013

•

•

Aim to encourage innovation

Introduced from 1 July 2016 – for “new” entrants to Patent Box

•

Phased in over a 4 year period

•

•

Provides an effective tax rate of 10% on qualifying profits

“new” entrant is either an IP asset created after 1 July 2016, or a company electing into Patent Box rules wef 1 July 2016 or later.

•

Applies to existing Patent Box entrants until 30 June 2021

•

Applies to new entrants for IP acquired on or after 2 Jan 2016.

•

Applies to existing Patent Box entrants for IP acquired on or after 2 Jan 2016

•

“Streaming” method only to be used

•

IP profits to be identified using “proportional profit split” or “streaming” methods

46

4.3 Patent Box – Key Conditions • Meet development condition.

• Meet active ownership condition if member of a group. • Hold qualifying IP rights or exclusive licence, i.e. patent to be granted by: •

UK IPO;

•

European Patent Office; or

•

granted under law of specified EEA State.

• Make the election.

47

4.3 New Patent Box Non-patented products

Patented products

10% Relevant IP Profits 20%

Profit attributed to non-qualifying income

Patent Box Profit • divided into income streams • apply R&D fractions

20% 20%

Profit attributed to routine return

Profit attributed to marketing assets return (or small claims) 48

4.3 New Patent Box – R&D Fraction Introduced •

R&D Fraction* = lesser of

(D + S1) x 1.3 (D + S1 + S2 + A)

or

1

• D = Co’s own qualifying R&D expenditure • S1 = Co’s R&D subcontracted to 3rd Parties

• S2 = Co’s R&D subcontracted to connected persons • A = Co’s qualifying expenditure on acquiring qualifying IP rights

* The OECD refers to the R&D Fraction as the “Nexus Fraction”

49

4.4 Apprenticeship Levy •

Apprenticeship levy on large employers, to help fund 3 million new apprenticeships (Government target by summer 2020)

•

Levy to be imposed from April 2017

•

0.5% of employer’s UK payroll bill

•

Each employer has a £15,000 allowance – therefore payrolls up to £3m will not incur any levy

•

Levy to be collected monthly via PAYE system

•

Part of money collected will be paid to employers to support apprenticeship training

•

Draft clauses to be published “early in the New Year”

50

4.5 Entrepreneurs’ Relief – Liquidation Distributions From 5 April 2016 (clause 18) a liq’n dist’n will be taxed as a divi and not as a capital gain where: A. Winding up of Close Co; B. At any time within 2 yrs from liq’n dist’n: A. Shareholder carries on similar trade; or B. He is connected with a participator in a Co that carries on a similar trade or that is connected to a Co that does; or C. He is involved with the carrying on of such a trade by a connected person;

Others Liquidation distribution

5%

5%

Trading Co

And A. It is reasonable to assume that a main purpose is the avoidance or reduction of a charge to income tax;

Distribution excludes amount of share capital “originally subscribed“ (i.e. not base cost!)

51

4.6 Transactions in Securities Insert New Top Holding Company • NewCo issues share capital with a nominal value = market value of ACo + BCo. • NewCo has received “new consideration” for its shares = MV of ACo + BCo. NewCo

ACo

BCo

Year 1

ACo

BCo

Later Year

• Liquidation distribution / repayment of share capital up to “new consideration” is therefore not a “distribution” (s1000(1) CTA 2010)

• But is the subsequent liquidation of NewCo a transaction in securities?

52

4.6 Transactions in Securities Insert New Top Holding Company

From 6 April 2016 (clause 16 Fin Bill 2016)

•

A liquidation distribution will be treated as a transaction in securities

New Co

ACo

BCo

Year 1

ACo

BCo

•

It is “clarified” that a repayment of share capital or share premium is a transaction in securities

•

Clearance issued prior to this change is not valid after 5 April 2016

Later Year

53

5 Other Tax Changes Impacting Corporates

54

5.1 “B” Share Schemes • Recent (i.e. 2014) “B/C” share schemes included Vodafone (following its sale of Verizon), Rexam plc (following the sale of part of its Healthcare Packaging business), John Wood Group plc, Soco International plc and Standard Life. • “B/C” share schemes typically involved the issue of: • 1 x “B” share (capital option – “B” shares are then to be redeemed); or • 1 x “C” share (income option – a single dividend will be paid); and • A consolidation (i.e. reduction) of the existing ordinary shares (e.g. 7 new Ords for every 9 existing Ords).

• “B” share schemes considered acceptable structuring per HMRC’s GAAR guidance (15 April 2013, para D2.3.2) but considered an “unfair tax advantage” per George Osborne (3 Dec 2014). • Taxpayers choosing capital option are now treated as if they had received a dividend on which income tax is chargeable for receipts from 6 April 2015. 55

5.1 “B” Share Schemes Not from 6/4/15 onwards! (new s396A ITTOIA 2005)

Before:

After:

• All shareholders own only ordinary shares (“Ords”)

• Greys: Opted for “B” shares (as they wanted CGT treatment) Co 1

Co 2

• Yellows: Opted for “C” shares (as they are basic rate taxpayers)

56

5.2 Entrepreneurs’ Relief – Changing Fast Finance Act 2015

Applies from

• Exclusion of goodwill in certain circumstances

• 03 Dec 2014

• Associated disposals – applies from 18 March 2015

• 18 Mar 2015

• Trading company definition – i.e. abolishing JV Co status

• 18 Mar 2015

Draft Finance Bill 2016 • Distributions in a winding up (clause 18)

• 06 Apr 2016

57

5.2 Entrepreneurs’ Relief – JV Provisions Pre 18 March 2015 • Min ords to be owned = 5% x 10% = 0.5% of Trading Group

Execs

• "Personal Company" had a deemed trade if qualifying JV co

Others 5%

From 18 March 2015 • “Personal Company” ceased to be a deemed trading company – needs a 51% interest in Trading Group to be trading company. • Also activities carried on by group through partnerships now treated as non-trading.

"Personal Company"

Investors

>75% ords by 10% "ord" & votes

Trading Group

58

Questions?

Paul Smith Tax Partner t: 020 7544 8823 e: [email protected] 59

While we have taken every care to ensure that the information contained within these slides is correct, it represents an overview and some complexities may have been simplified for presentational purposes. Accordingly, it should not be taken as sufficient for making decisions. Where decisions are contemplated, specific professional advice should be obtained.