Technical

Your international tax update

Matt Stringer Matt Stringer

Welcome to the latest in our series of regular international tax updates

Going forward, we'll share the latest technical updates and emerging developments to keep you informed. As UK tax practitioners, the updates will generally have a UK lens, but we'll strive to also include relevant updates from around the globe.

In this update:

Working from anywhere: the new normal

In response to challenges posed by COVID-19, many businesses around the world have been forced to allow employees to work from home to ensure business continuity. In some cases, employees have worked outside of the country in which their employing company is tax-resident and their normal work activities are conducted.

As working from anywhere becomes the 'new normal', many employees may continue to work from overseas, either for the medium term as the impact reduces, or in a long-term arrangement.

There is a risk that activities conducted by these employees could create a taxable presence in the jurisdiction in which they are physically located, ie, a permanent establishment (PE).

It may also present corporate residence risks for key company decision makers. There may be personal income tax, payroll withholding, social security and indirect tax implications to consider too.

Brexit looms: fewer than 100 days to go

While the various VAT and customs duty implications of Brexit have been widely talked about, the direct tax implications can often be missed. 

This is understandable, given the need to keep supply chains open, goods moving and to manage the impact changing customs duties may have on margins.

However, you also need to consider:

  • whether you have tax-efficient profit and cash repatriation
  • if IP is moving as a result of operational changes in your organisation
  • whether other companies in your group relied upon the UK’s status with the EU from a tax perspective historically?

Taking some simple steps before the end of the year could help manage unexpected tax costs in the future.

Visit our Brexit hub

UK diverted profits tax: HMRC approach

HMRC continue to send ‘nudge letters’ to multinational businesses they have identified as being at risk of a diverted profits tax (DPT) notice.

As part of these letters, HMRC encourage taxpayers to make use of their Profit Diversion Compliance Facility (PDCF) - a forum by which the taxpayer can put forward a proposal to amend the design or implementation of their transfer-pricing policies.

The PDCF allows a taxpayer to make a proposal to settle any additional tax possibly due by such amendments without HMRC enquiry or actual receipt of a DPT notice.

Receipt of a nudge letter, of course, does not necessarily infer that a DPT notice would follow, and so use of the PDCF is entirely optional. Benefits include the chance to put forward a taxpayer-driven proposal, an accelerated timeframe for HMRC consideration, and potentially preferential penalty treatment due to unprompted disclosure.

Netherlands 2021 tax plan

On 15 September, the Dutch government proposed its 2021 tax plan to parliament.

The key headlines are that the lower corporate tax rate will be reduced to 15% and the profits bracket of the lower corporate tax rate will be increased to EUR 245,000 in 2021, and further increased to EUR 395,000 in 2022.

There will be a new restriction on the use of liquidation losses on participations and cessation losses on permanent establishments. Losses above EUR 5 million will now only be deductible when the participation or the permanent establishment is a resident of an EU Member State. The shareholding in the participation must also exceed 50%.

The effective rate of the innovation box will increase from 7% to 9% in 2021.

Tax plan 2021: international tax aspects >>

To discuss the content of this international tax update get in touch with Matt Stringer.