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Uganda Update continued In determining whether the results of a transaction are consistent with the ALP, a taxpayer may use the most appropriate method taking into account: (a) the respective strengths and weaknesses of the transfer pricing methods available (b) the appropriateness of a transfer pricing method and nature of the controlled transaction determined (c) the availability of reliable information and data; and (d) the degree of comparability between controlled and uncontrolled transactions, including the reliability of adjustments. In the event of any inconsistency between the Income Tax Act and the OECD regulations, the Income Tax Act shall prevail. Transfer Pricing documentation The affected taxpayers in Uganda are required to record in writing, sufficient information and analysis to verify that the controlled transactions are consistent with the ALP. Such documentation should be put in place by the taxpayer prior to the due date for filing the income tax return for the year in question. Penalties for non-compliance A person who fails to comply with the transfer pricing regulations is liable on conviction to imprisonment for a term not exceeding six months or to a fine not exceeding 25 currency points or both. In addition to this, any person who fails to maintain a Transfer Pricing policy is liable on conviction to imprisonment for a term not exceeding six months or to a fine not exceeding 25 currency points or both. Advance Pricing agreements also allowed The TP regulations provide a reprieve to taxpayers by allowing them to enter into Advance Pricing Agreements (APAs) with URA. Such an APA would lay down a set of criteria for determining whether the taxpayer has complied with the ALP for certain future controlled transactions undertaken by the taxpayer over a fixed period of time. This is however at the Commissioner’s discretion. Furthermore, the Commissioner is mandated to make tax adjustments on certain transactions as may be necessary, to avoid double taxation of income that may already have been subjected to tax in another jurisdiction. This is subject to there being a Double Tax Treaty between Uganda and the country in question and the adjustment being consistent with the ALP. Implication on taxpayers The new regulations having been published, effective 1 July 2011, mean that Ugandan taxpayers with transactions with related non-resident entities are required to prepare and maintain relevant Transfer Pricing documentation. Similarly, those with resident related entities subject to common control will also be required to maintain transfer pricing documentation. Such documentation for a year of income must be in place prior to the due date for filing of the income tax return for that year. For more information please contact: Albert Beine PKF Uganda T: +256 414 341523 F: +256 414 251370 E: abeine@ug.pkfea.com 45 // PKF International Tax Alert All Regions Issue 8 November 2011
United Kingdom Update Changes proposed to remove current restrictions on qualifying expenditure The UK Government has taken significant measures this year to encourage innovation and research & development activity in the UK through a series of proposed reforms to the corporate tax system. R&D tax relief The UK has had a special tax relief for R&D expenditure since 2000. Broadly speaking, relief is available to small and medium-sized companies (SMEs) for 175% (130% for large companies) of eligible expenditure (including staff costs, computer software and consumable items) on projects that seek an advance in science or technology through the resolution of uncertainties. Loss-making SMEs are able to claim a payable tax credit instead of claiming an enhanced tax deduction. The rate of relief is increased from 175% to 200% from 1 April 2011 and to 225% from 1 April 2012. These increases are subject to EU state aid approval. Further changes, also proposed to apply from 1 April 2012, are intended to remove some current restrictions on qualifying expenditure and to make the rules easier to apply. The changes are expected to be of most benefit to SMEs. ■ The existing requirement for the company to spend at ■ ■ ■ ■ ■ least £10,000 in the year concerned on qualifying R&D expenditure is to be abolished. The current cap on the amount of payable tax credit is to be removed. At present, the credit cannot exceed the income tax and National Insurance payments made by the company in respect of all its employees during the year concerned. The Government is considering how it could implement a system whereby the benefit of the tax relief is recognised ‘above the tax line’ in the company’s accounts. This would probably require the extension of the payable tax credit to large companies. Changes are proposed to the rules for allowing relief for expenditure on sub-contractors and externally provided workers. There is currently uncertainty as to the amount of eligible expenditure where R&D is carried out in the course of production activities. Draft guidance has been published which will hopefully clarify the boundaries in this area. A new upfront clearance procedure has been proposed for smaller companies and new start-ups. If you have any queries regarding the availability of R&D tax relief in the UK, please contact Denise Roberts, PKF (UK) LLP’s leading expert in this area (denise.roberts@uk.pkf.com). 46 // PKF International Tax Alert All Regions Issue 8 November 2011
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