Corporate Tax 2010 - BMR Advisors

Slaughter and May
United Kingdom
5.3 Is there a participation exemption
Non-resident shareholders disposing of UK investments continue to
be outside the scope of UK tax. A shareholder within the scope of
UK tax may benefit from the substantial shareholdings exemption.
The substantial shareholdings regime allows trading groups to
dispose of trading subsidiaries without a UK tax charge provided
that the strict conditions for the exemption are met.
The substantial shareholdings exemption is narrower and more
complex than the participation exemption which may be found in
other countries.
5.4 Is there any special relief for reinvestment
There is rollover relief for the replacement of business assets, but
the definition of “business assets” does not include shares.
Rollover is available to the extent that the whole or part of the
proceeds of disposal of certain business assets are, within one year
before or three years after the disposal, applied in the acquisition of
business assets to be used in the same or a different trade.
6 Branch or Subsidiary
6.1 What taxes (e.g. capital duty) would be imposed upon the
formation of a subsidiary
There are no taxes imposed on the formation of a subsidiary.
6.2 Are there any other significant taxes or fees that would be
incurred by a locally formed subsidiary but not by a
branch of a non-resident company
income from property and rights used or held by or for the
permanent establishment (but not including exempt
distributions from UK resident companies); and
chargeable gains accruing on the disposal of assets situated
in the UK while the UK trade is carried on and effectively
connected with the operations of the permanent
establishment.
6.4 Would such a branch be subject to a branch profits tax (or
other tax limited to branches of non-resident companies)
There is no branch profits tax.
6.5 Would a branch benefit from tax treaty provisions, or some
of them
The UK domestic legislation does not give treaty relief against UK
tax unless the person claiming credit is resident in the UK for the
accounting period in question. This means that the UK branch of a
non-resident company cannot claim treaty relief.
Unilateral tax credit relief may be allowed for tax paid outside the
UK in respect of the income or chargeable gains of a UK branch or
agency of a non-UK resident person if certain conditions are
fulfilled. Tax payable in a country where the overseas company is
taxable by reason of its domicile, residence or place of management
is excluded from relief. The maximum credit relief is limited to that
which would have been payable if the branch or agency had been a
UK resident person and the income or gains in question had been
income or gains of that person.
6.6 Would any withholding tax or other tax be imposed as the
result of a remittance of profits by the branch
United Kingdom
A UK resident subsidiary would pay corporation tax on its
worldwide income and gains, whereas a UK branch would be
subject to corporation tax only on the items listed in the answer to
question 6.3. The charge to UK corporation tax imposed on a nonresident
company only applies where the non-resident company is
trading in the UK through a permanent establishment. This means
that a branch set up for investment purposes only and not carrying
on a trade is not subject to UK corporation tax.
6.3 How would the taxable profits of a local branch be
determined
Provided that the local branch of a non-resident company is within
the UK statutory definition of “permanent establishment” (which is
based on the wording of Article 5 of the OECD Model Convention),
it will be treated as though it were a distinct and separate entity
dealing wholly independently with the non-resident company and
having the equity and loan capital which it would have if it were a
distinct entity. This means that the thin capitalisation rules will
apply to the UK permanent establishment and it will be assumed
that it has the same credit rating as the non-resident company. To
the extent that the UK thin capitalisation rules restrict the financing
costs of the permanent establishment, the profits attributed to the
permanent establishment, and therefore subject to UK corporation
tax, will increase.
Subject to any treaty provisions to the contrary, the taxable profits
of the permanent establishment would comprise:
trading income arising directly or indirectly through or from
the permanent establishment;
No withholding tax or any other tax would be imposed as the result
of a remittance of profits by the branch.
7 Anti-avoidance
7.1 How does the United Kingdom address the issue of
preventing tax avoidance For example, is there a general
anti-avoidance rule or a disclosure rule imposing a
requirement to disclose avoidance schemes in advance of
the company’s tax return being submitted
There is no general anti-avoidance rule in the UK. Disclosure rules
were, however, introduced in the UK in 2004 and their scope has
subsequently been extended so that the rules now apply to certain
tax planning arrangements relating to direct tax, SDLT, VAT,
pension contributions and national insurance contributions. The
disclosure rules are designed to provide HMRC with information
about potential tax avoidance schemes at an earlier stage than
would otherwise have been the case. This enables HMRC to
investigate the schemes and to introduce legislation to counteract
the avoidance where appropriate.
The rules seem to have been a success for HMRC and many
disclosed schemes have subsequently been blocked with targeted
anti-avoidance legislation which prevents other taxpayers from
using the same schemes.
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