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Weekly Tax Matters
KPMG LLP (UK)
21 November 2014
contents
TAX POLICY
•
•
•
Autumn Statement 2014
OTS report on tax penalties
S13 TCGA declared contrary to EU Treaty
CORPORATE TAX
•
•
Fidex v Commissioners for HMRC – Upper Tribunal decision
HMRC supplementary guidance on CFC finance company
exemption
INDIRECT TAX
•
Esporta Ltd - taxpayer refused permission to appeal to the
Supreme Court
EMPLOYMENT TAX
•
•
•
OTS employment status review opens for comment
Guidance on the end of contracting-out
Voluntary Class 3A NICs
INTERNATIONAL STORIES
•
International round up
OTHER NEWS IN BRIEF
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
TAX POLICY
AUTUMN STATEMENT 2014
This year’s Autumn Statement is
approaching fast - and KPMG in the
UK will keep you up to date on the
tax and pensions measures.
Chris Morgan
 +44 (0)20 7694 1714

christopher.morgan@kpmg.co.uk
Readers will probably already be aware that this year’s Autumn Statement will take
place on Wednesday 3 December. Whilst the Autumn Statement started life with a
primary focus on the economics, recent years have seen a move towards more taxrelated announcements, and we expect that to continue this year. A number of tax
measures have already been trailed, not least measures to address international tax
rules, especially targeting multinational technology companies. Doubtless the
Chancellor will also have some tax surprises to unveil on the day.
Look out for our commentary, which will give you an overview of all the tax and
pensions measures in the Autumn Statement. Our webinar, which will focus in more
detail on the key issues for both businesses and individuals, will take place at 9am on
Thursday 4 December – click here to register. We’ll also round up all the
developments in the 5 December edition of Weekly Tax Matters.
Readers interested in the employment taxes aspects of the Autumn Statement and
draft clauses for Finance Bill 2015 due to be published the following week may also be
interested in our Employers’ Club December events – more information on these can
be found in the other news section of this edition.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
OTS REPORT ON TAX PENALTIES
A high level report on tax penalties
from the Office of Tax Simplification
makes 14 recommendations and
suggests a further more detailed
review.
Chris Davidson
 +44 (0)20 7694 5752

chris.davidson@kpmg.co.uk
Paul Harrison
On 13 November 2014, as the conclusion of a short project looking at tax penalties, the
Office of Tax Simplification (OTS) published its final report. This report makes 14
recommendations and proposes a more detailed government review be carried out as
this project was limited in time and scope.
The key message coming from this report is that the legislation introduced recently (i.e.
that brought in with Finance Acts 2007, 2008 and 2009) is generally considered to be
working as it should but there are a number of concerns around the practical
application of that legislation.
Most of the recommendations are uncontroversial and focus on improving training and
awareness for staff at HM Revenue & Customs (HMRC) and improvements in certain
processes. Within the main body of the report, there are some discussions which
readers interested in this subject may wish to look at - in particular, the discussion of
inconsistency in suspension of penalties (para 3.4 onwards) and the section on Special
Reduction (para 3.23 onwards).
 +44 (0)20 7311 3053

paul.harrison@kpmg.co.uk
S13 TCGA DECLARED CONTRARY TO
EU TREATY
The old version of s13 TCGA has
been found incompatible with EU
provisions.
Chris Morgan
 +44 (0)20 7694 1714

christopher.morgan@kpmg.co.uk
Mike Walker
The Court of Justice of the European Union (CJEU) has ruled that s13 of the Taxation
of Capital Gains Act (TCGA) 1992 (s13), which attributes gains of non-UK resident
close companies to UK resident participators, was contrary to EU Treaty Provisions
relating to free movement of capital. The Judgment only applies to s13 prior to the
changes introduced by Finance Act 2013 which were specifically designed by the UK
Government to make s13 compliant with the EU Treaty Provisions.
The CJEU had repeatedly held that the objectives of combating tax evasion and tax
avoidance could justify a restriction of the free movement of capital, although that
restriction should be appropriate and not go beyond what is necessary for attaining
those objectives. In this case, the CJEU held that although s13 could contribute to
attaining the objective of combating tax avoidance, it went beyond what was necessary
for attaining that objective in that it was not confined to targeting wholly artificial
arrangements but also affected situations in which the economic reality could not be
disputed.
 +44 (0)161 246 4117

mike.walker@kpmg.co.uk
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
CORPORATE TAX
FIDEX V COMMISSIONERS FOR
HMRC – UPPER TRIBUNAL DECISION
The Upper Tribunal has published a
decision on unallowable purpose and
rights of HMRC to raise new
arguments after a closure notice is
issued.
Peter Scholes
 +44 (0)20 7311 8343

The Upper Tribunal has allowed an appeal by HM Revenue & Customs (HMRC) in
Fidex v Commissioners for HMRC (2014 UKUT 0454), determining that the loan
relationships unallowable purpose rule applied to a transitional adjustment arising on
the adoption of new GAAP accounting (IFRS) at the start of 2005.
The Tribunal also rejected an appeal by the taxpayer against an earlier decision of the
First Tier Tribunal (FTT) which found that the omission by HMRC of any unallowable
purpose argument in the closure notice issued to Fidex Limited (or previous
correspondence) did not preclude HMRC from raising the issue before the FTT.
A note has been prepared setting out the facts of the case and details of the Tribunal
decision. If you have any questions on this decision or its implications for your
business please speak to your usual Tax & Pensions contact.
peter.scholes@kpmg.co.uk
Rob Norris
 +44 (0)121 232 3367

rob.norris@kpmg.co.uk
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
HMRC SUPPLEMENTARY GUIDANCE
ON CFC FINANCE COMPANY
EXEMPTION
HMRC guidance on legislation which
can prevent a loan from a CFC being
a qualifying loan relationship for the
finance company exemption.
Michael Bird
 +44 (0)20 7694 1717

michael.bird@kpmg.co.uk
Tom Lobb
 +44 (0)20 7694 3850

thomas.lobb@kpmg.co.uk
On 19 November 2014, HM Revenue & Customs (HMRC) issued supplementary
guidance on the application of new Section 371IH(9A) – (9E) of the Taxation
(International and Other Provisions) Act (TIOPA) 2010, which can prevent a loan from
a controlled foreign company (CFC) being a qualifying loan relationship for the
purposes of the finance company exemption. Guidance on these provisions, which
HMRC now say is final, was originally published on 17 April 2014. However, this did
not address the impact of the OECD base erosion and profit shifting (BEPS) project, or
potential changes in US tax laws, on groups with existing tower structures.
The supplementary guidance includes an additional example which involves a group
moving from an existing tower structure to a Luxembourg finance company (Lux
FinCo), where the existing tower loans are refinanced by a new loan to the US
subgroup from Lux FinCo. In this example, HMRC say that it is established as a
matter of fact that one of the main purposes of the restructuring was to address a
concern that tower structures “…could, in future, become ineffective due either to
changes to tax rules arising from the OECD BEPS initiative or to possible US tax
reforms targeting the use of hybrid entities in debt financing”. They then go on to say
that the achieving of this purpose involves, as an essential element, the elimination of
taxable credits which previously arose from the tower loan on the UK to the US and,
therefore, the purpose test in Section 371IH(9A)(c)(i) is failed. As a result, the loan
made by Lux FinCo would be prevented from being a qualifying loan relationship.
If you have any questions on how this supplementary guidance could impact your
business please speak to your usual Tax & Pensions contact.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4
INDIRECT TAX
ESPORTA LTD - TAXPAYER REFUSED
PERMISSION TO APPEAL TO THE
SUPREME COURT
Esporta has been refused permission
to appeal to the Supreme Court,
therefore ending the case with defeat
for the taxpayer at the Court of
Appeal.
Steve Powell
The Supreme Court has released its permission to appeal results for October. This
confirms that Esporta has been refused permission to appeal with the court adding it
had reached this decision because ‘the application does not raise an arguable point of
law.’
Readers may remember that the case concerned the taxpayer’s treatment of monthly
gym payments collected after the member had breached the contract terms by failing
to pay promptly, and had been refused access to the facilities as a result, while still
remaining a member. The taxpayer argued the payments collected late were
compensation payments for breach of contract and therefore outside the scope of VAT
as the member received nothing for them. The First-tier Tribunal (FTT) agreed but the
Upper Tribunal (UT) overturned the FTT decision. The UT said the monthly payments
were for the right to use the facilities whether paid in advance, on time or late.
 +44 (0)20 7311 2746

stephen.powell@kpmg.co.uk
Karen Killington


+44 (0)20 7694 4685
karen.killington@kpmg.co.uk
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved..
5
EMPLOYMENT TAX
OTS EMPLOYMENT STATUS REVIEW
OPENS FOR COMMENT
The OTS are requesting feedback on
their review into the boundaries
between
employed
and
selfemployed status.
Steve Wade
 +44 (0)20 7311 2220

steve.wade@kpmg.co.uk
Mike Lavan
 +44 (0)20 7311 1437

mike.lavan@kpmg.co.uk
In recent years the distinction between self-employed and employed has become
blurred due to the growth of freelancing and people working in more than one
business, where they may be self-employed in one area whilst working for an employer
in another.
This difficulty in definition has had a knock-on effect for tax purposes as there are
significant tax and National Insurance differences between employed and selfemployed status. Getting it wrong can be extremely costly for both businesses and
individuals.
In light of this, the Government has asked the Office of Tax Simplification (OTS) to look
at the boundaries between employed and self-employed status and whether they are
drawn in the right place.
As part of their review, the OTS aims to consider:
•
•
•
•
•
•
Whether the employment status test causes uncertainty;
Employment sectors where problems with tax status are common;
Situations where individuals have multiple roles;
The regulations for special cases;
The possibility of simplification using digitisation; and
Comparisons to other countries’ approach to employment status.
The review will specifically not cover IR35, the Construction Industry Scheme (CIS), or the difference in expenses rules between employees and the
self-employed.
The OTS are asking for comments from interested parties, including business, individuals and professional advisers and have published these key
questions to assist with responses. Although responses are welcome at any time, the OTS give a suggested deadline of 31 December 2014 as they
aim to publish their findings in time for Budget 2015, to allow any ‘quick wins’ to be incorporated into Finance Bill 2015. They do note, however, that
any major reforms will be for the next Government to consider.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
GUIDANCE ON THE END OF
CONTRACTING-OUT
The DWP has published a number of
factsheets
on
the
ending
of
contracting-out of the additional
state pension on 6 April 2015.
Steve Wade
 +44 (0)20 7311 2220

steve.wade@kpmg.co.uk
The Department of Work and Pensions (DWP) has published guidance on the ending
of contracting-out of the additional state pension on 6 April 2015. The guidance is split
into three factsheets explaining the impact on employers, employees and trustees.
The factsheet for employers explains the changes to National Insurance (NI)
contributions for employers and employees from 6 April 2015 when contracting out
ends. Employers will no longer receive the 3.4 percent NI rebate (on a proportion of
earnings) and the 1.4 percent NI rebate for employees in contracted-out schemes will
also end. It may be possible to amend the scheme to mitigate NI increase and
employers are encouraged to speak to their pension’s advisers to determine how their
schemes may be affected and any action they can take.
Employers should ensure their Scheme Contracted-Out Number (SCON) is correct
when completing their PAYE Real Time Information (RTI) submission. This will ensure
the employer’s scheme can be correctly identified when HM Revenue & Customs
(HMRC) close all open periods of contracting-out after 5 April 2016.
The employee factsheet for employees born after 6 April 1951 (men) and 6 April 1953
(women) advises employees that their employer may make changes to workplace
pension schemes to help offset the end of the NI rebate for employers.
The guidance for trustees encourages trustees to:
•
•
•
•
check whether any of the changes due to the end of contracting-out will affect
their schemes;
determine how they will operate going forward;
discuss changes with advisers; and
Make sure the administrators are kept up to date about these changes.
Trustees are also advised to ensure their records are up to date, to authorise
administrators to sign up to the HMRC Scheme Reconciliation Service and to notify
members about the ending of contracting-out and any changes being made to their
scheme.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
VOLUNTARY CLASS 3A NICS
Class 3A Voluntary NICs were
announced in 2013 as a way to
enable those reaching pensionable
age before 6 April 2016 to top up
their state pension.
Steve Wade
 +44 (0)20 7311 2220

steve.wade@kpmg.co.uk
Class 3A Voluntary National Insurance Contributions (NICs) were announced in the
2013 Autumn Statement to help those reaching pensionable age before 6 April 2016
who had not been able to build much additional state pension. Legislation allowing for
Class 3A NICs was included in the Pensions Act 2014, and HM Revenue & Customs
(HMRC) have now published a Tax Information and Impact Note (TIIN) which sets out
a useful overview of the measure.
The measure is entirely voluntary and aims specifically to help women and other
groups with low earnings during their working lives, who have not previously had the
opportunity to top up their state pensions. It is aimed at those individuals who will
reach state pension age before the introduction of the new single tier state pension in
April 2016, and qualifying individuals will be able to make Class 3A NIC payments from
October 2015 until 5 April 2017.
Under the new measures there will be two entitlement conditions. Contributors must:
•
•
have entitlement to a UK state pension (basic or additional) and;
reach state pension age before 6 April 2016.
The Government has estimated a take-up of 265,000 individuals.
The TIIN states that Class 3A will be set at “an actuarially fair rate” to ensure that it is
equitable for both contributors and current workers. A key component of this is that
prices will vary according to the age an individual takes up Class 3A, with prices for
older pensioners being lower.
Click here for the background on the new measures and further information.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
INTERNATIONAL
STORIES
INTERNATIONAL ROUND UP
This week: new tax exemption for
fixed asset investment income in
Uruguay; Japan postpones increase
in consumption tax; Chinese income
tax exemption for new ShanghaiHong Kong stock market gains;
Chinese
customs
enterprise
management system to be simplified;
latest E-News from KPMG’s EU Tax
Centre; AG opinion on the Dutch ’30
percent’ rule; Italian legislation to
enable
voluntary
disclosure;
Switzerland signs up to automatic
exchange of information; Hungarian
taxes update; Ireland expands foreign
earnings deduction relief; EU releases
decision to investigate Dutch transfer
pricing rulings; and use of the RPM
pricing method agreed in Indian tax
case.
Every week, KPMG member firms around the world publish updates on developments
in their country. In Weekly Tax Matters we’ll highlight a selection that may be of interest
to our readers.
Americas
Uruguay – A new law has introduced a tax exemption for income relating to certain
investment in fixed assets.
More TaxNewsFlash – Americas can be found here.
Asia Pacific
Japan – The government has announced that the planned increase in consumption
tax will be postponed until April 2017.
China – An income tax exemption has been announced for foreign investors realising
capital gains on shares traded on the new Shanghai-Hong Kong stock market
programme.
China – The existing enterprise management system for customs purposes is to be simplified.
More TaxNewsFlash – Asia Pacific can be found here.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
Europe
EU - The latest edition of E-News published by KPMG’s EU Tax Centre has been published. It summarises recent Court of Justice of the European
Union (CJEU) activity, news from EU institutions and the OECD, and recommended news articles and commentary.
The Netherlands – The Advocate General at the CJEU has issued her Opinion on the ’30 percent’ rule for tax free income for employees living more
than 150 kilometres outside the country and working within the country.
Italy – Legislation has been proposed to allow for voluntary disclosure of any tax irregularities in advance of the implementation of automatic
exchange of information.
Switzerland – the OECD has announced that Switzerland has signed the multilateral competent authority agreement paving the way for automatic
exchange of financial information.
Hungary – The government has approved legislation amending a number of personal, corporate and indirect tax provisions.
Ireland – The foreign earnings deduction relief has been expanded.
More TaxNewsFlash – Europe can be found here.
Transfer Pricing
The Netherlands - The European Commission (EC) has released a “non-confidential version” of its June 2014 decision to open an in-depth
investigation into certain Dutch transfer pricing arrangements and whether they constitute State aid.
India – In a recent tax case, the taxpayer’s use of the resale price method (RPM) for distribution activities has been upheld.
More TaxNewsFlash – Transfer Pricing can be found here.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
OTHER NEWS IN BRIEF
OTHER NEWS IN BRIEF
This week: Update on direct recovery
of debts; Employment Tax seminar;
Employers’ Club online briefing for
December; new guidance on share
plans from KPMG in the UK; and
Infrastructure 100 identifies the
world’s
most
innovative
infrastructure projects.
At time of going to press, the Government has announced new safeguards for its plan
to recover tax debts directly from taxpayer bank accounts. Further details on this will
be featured in a future Weekly Tax Matters.
KPMG in the UK is holding an Employment Tax seminar at our Canada Square office
on 15 December 2014. The seminar will provide attendees with an update on
Employment Tax developments following the Autumn Statement, along with a
presentation on the ongoing work of the Office of Tax Simplification by John Whiting
OBE. To register your interest, click here.
KPMG’s Employers’ Club is holding their December online briefing on 9 December
2014 at 10am. Mike Lavan will be looking at the Autumn Statement, focusing on the
impact this will have for the coming year from an Employment Tax perspective. Click
here to register.
KPMG in the UK has produced a new one page guide to registering an employee
share plan online and has also updated the previous briefing sheets produced earlier
this year covering the rules on internationally mobile employees participating in share
plans and the move to online filing of share plan annual returns – click here to read.
Infrastructure 100: World Markets Report, prepared by KPMG International, identifies
100 of the world’s most innovative and impactful infrastructure projects – as judged by
a panel of global independent experts - and highlights key trends driving infrastructure
investment.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
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© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
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