Expatriate taxation - CIOT - The Chartered Institute of Taxation

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CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION days in a tax year and that period does not form part of a more substantial period when the taxpayer is present in the UK.” 6.12 As HMRC always make clear, Tax Bulletins are just their view of the law. It is not necessary for anyone to accept this view. However, anyone taking a contrary view would have to disclose a departure from this view (or risk a discovery assessment for the next five years and ten months) and also a challenge through the Courts. 6.13 It is astonishing that ten years later we have no general acceptance from the tax profession of HMRC’s view. It is certainly my view that HMRC are wrong. Why a) Section 788 is the law. It states that, if Her Majesty makes an Order in Council, then the arrangements in that Order shall have effect. b) Double Taxation Agreements are Orders in Council. Once the Order is made, then the arrangements in that Order are law. c) The Double Taxation Agreements do not carry a definition of “employer” within Article 15, so it is up to the Courts to determine what the meaning of the word is under UK law, which would be tax law if there were any tax law precedent, or under general law if there were no precedent. (It would not be unkind to say the Courts are undecided on the vexed question of who is the employer - see Issue 2 above.) We are equally unclear as to whether there is an employment or self-employment in many cases. d) There is no general law that provides a definition of the word “employer”. The law is not created by a statement by the FST in a parliamentary debate, although this can be regarded as an expression of wishes. e) In the absence of any change to the law, the law applying to the DTA when it was made must prevail until it is changed. 6.14 Given such imprecision, it is surprising that HMRC have such a clear view of the meaning of the term “employer”, and have done for so many years, and unsurprising that large employers with many expatriates are reluctant to accept the nominal 60-day test. Proposal 6.15 There is such a wide variety of views that it is difficult to see any approach that would make a hit in all quarters. However, this is an area where there would be some merit in having a workshop approach, and inviting affected employers to air views to see whether some acceptable middle ground could evolve. Peter Ashby 28 6.2.07
CIOT RESEARCH PROJECT ON EXPATRIATE TAXATION 7 Issue 7: Foreign tax credit 7.1 The issue here is how you calculate a foreign tax credit given that there is no defined or accepted method for calculating the foreign tax credit and, as a result, there are numerous ways of calculating what the foreign taxes eligible for credit should be. Applicable law 7.2 ICTA 1988 section 788 applies for any individual who wishes to reduce his UK tax on doubly taxed income. The legislation enables Double Taxation Agreements to be effective, provided they have been introduced by Order in Council or in effect, a Statutory Instrument. The law is therefore open for the Government to write as it sees fit, provided it is enshrined in a Statutory Instrument. Relief can be given either by exempting income from UK tax or by giving credit for tax paid elsewhere. 7.3 The Statutory Instruments invariably introduce the wording of the Double Taxation Agreement, so the Double Taxation Agreement is the law. 7.4 However, the legislation recognises that there is not a DTA with every country, not least because new countries are being formed. Therefore ICTA 1988 section 790 provides for unilateral relief to be given by the UK. Unilateral relief is only given by way of tax credit relief. 7.5 It is always possible for unilateral relief to be applied to a country where there is a Double Taxation Agreement, if that Double Taxation Agreement does not provide for credit relief and it would be beneficial to claim relief in that way. Current practice 7.6 If there was ever a topic that I have struggled more with, I have forgotten it. The way in which a tax credit is calculated causes enormous debate and numerous solutions, and not just within the same firm. I have seen my own solution change with the years. Double taxation arises in a number of ways: a) When the expatriate is dually resident and so paying tax in both countries of residence; b) When the expatriate is resident in one country but working in another country, and the country of residence taxes on a worldwide basis (eg the UK), and the country where the work is performed taxes regardless of residence, even for one day’s work (eg the UK); c) When the employment contract is between an employer and employee based in one country, and the employment is exercised in another country (eg Brazil taxes if the employer is Brazilian) and the jurisdiction authorises a withholding tax. If home country taxation is effectively a “payroll tax”, it gives rise to the issue of whether a tax credit is available as the tax is paid by the employer not the employee. This affects Singapore, Brazil and taxes like the Fringe Benefits Tax in Australia. Peter Ashby 29 6.2.07
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Expatriate taxation - CIOT - The Chartered Institute of Taxation

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