On February 12, 2019, the U.K. enacted Finance Act 2019 (the “Finance Act”), which includes numerous BEPS-related provisions, such as neutralizing hybrid mismatches, controlled foreign corporations (CFCs), corporate interest restriction, permanent establishment (PE), intangible assets, disclosable arrangements, and dispute resolution.
With respect to hybrid mismatches, the Finance Act amends Part 6A of TIOPA 2010, specifically regarding the deduction/non-inclusion (D/NI) mismatch and other provisions. A D/NI mismatch occurs where payments are deductible in the payer’s jurisdiction and are not included in the payee’s ordinary income. The BEPS Action 2 final report recommends denying the deduction in the payer’s jurisdiction. In the event the payer jurisdiction does not neutralize the mismatch, this report recommends a defensive rule that would require the payment to be included as ordinary income in the payee’s jurisdiction. The D/NI amendment will be effective for payments made on or after January 1, 2020.
The Finance Act amends Part 9A of TIOPA 2010 by adding that if a U.K. resident company (whether alone or together with any associated enterprises) directly or indirectly has more than a 50% investment in a non-U.K. resident company, the non-U.K. resident company will be considered a CFC. A person is an “associated enterprise” in relation to a U.K. resident company if this person directly or indirectly has a 25% investment in the company (or vice versa), or another person directly or indirectly has a 25% investment in both the company and the person. This amendment will be effective for CFC accounting periods beginning on or after January 1, 2019.
With respect to the corporate interest restriction, Schedule 11 of the Finance Act contains provisions amending Part 10 of TIOPA 2010. On PEs, the Finance Act would amend Section 1143 of Corporation Tax Act (CTA) 2010 (preparatory or auxiliary activities) by defining activities that are “part of a fragmented business operation.” The amendments would be effective for accounting periods beginning on or after January 1, 2019. On the Diverted Profits Tax (DPT), the Finance Act would amend Part 3 of Finance Act 2015 with effect for accounting periods beginning on or after October 29, 2018.
Schedule 9 of the Finance Act contains a provision on the debits to be brought into account for corporation tax purposes with respect to goodwill and certain other assets. There are also amendments to Part 8 of CTA 2009. The Finance Act includes provisions on disclosable arrangements. According to this section, the Treasury may make regulations requiring persons who participate in specific international arrangements to disclose information about those arrangements.
Finally, the Finance Act contains provisions on dispute resolution. The Treasury may make regulations, which would give effect to EU Directive 2017/1852 (the “Directive”) on tax dispute resolution mechanisms in the EU; any instrument modifying or supplementing the Directive; any international agreements or arrangements that deal with (i) matters dealt with by the Directive, (ii) matters that are similar to any of those dealt with by the Directive, or (iii) any other matters that relate to or are connected with the resolution of disputes in relation to double taxation arrangements.
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