One minute with... Zoe Feller

An interesting mix of corporate M&A, inbound structuring advice, IP holding company structures and a tricky capital reduction demerger. We have also been thinking about the profit diversion compliance facility; mainly focusing on clients who have expanded quickly over the last few years and whose transfer pricing policies haven’t kept up with their business models, rather than any form of deliberate diversion. In particular, tech start-ups based overseas who have set up UK subsidiaries without proper arm’s length arrangements in place which could now fall within the ‘lack of economic substance’ limb of the diverted profits tax.

A few technical consequences of Brexit have gone under the radar. I am concerned that without changes to domestic legislation, UK business will be faced with asymmetry of treatment where EU directives have been incorporated into UK tax law. For example, after the UK leaves the EU, a UK company paying royalties to its Italian parent company will not be obliged to withhold tax from that payment pursuant to ITTOIA 2005 s 757, but an Italian company paying a royalty to its UK parent (after the transition period, if any) would be required to withhold tax at 8%. This asymmetry applies wherever a directive has been incorporated into UK law, so includes the Parent Subsidiary Directive and certain provisions from the Mergers Directive.

In a relatively rare win for the taxpayer, in R (Vacation Rentals (UK) Ltd (formerly The Hoseasons Group Ltd)) v HMRC [2018] UKUT 383 (TCC), the Upper Tribunal overturned HMRC’s decision not to rely on its published guidance. The tribunal held that a taxpayer had a legitimate expectation that its supplies of card handling services would be exempt from VAT in accordance with the guidance in HMRC’s Business Brief 18/06. Although the business brief has now been archived and subsequent CJEU decisions mean that outsourced card payment handling services are now likely to attract standard rate VAT, it is reassuring to see the tribunal pushing back on circumstances in which HMRC can resile from its own guidance.

The race to agree a new approach for taxing digital businesses is proving to be fascinating from a political as well as a technical perspective. There are three key areas of development: the OECD (which may have changed since the original publication of the BEPS action plans), the European Commission, and individual countries. The EC and OECD are taking different approaches, and even within the EU there are conflicting views driven by political and economic considerations, with some member states (including France, Italy and Slovakia, as well as the UK) having also acted unilaterally.

The EC’s two separate proposals are really interesting. The longer-term proposal requires a new definition of a digital permanent establishment. However, any proposal requires unanimous support amongst EU member states, which may be difficult to reach where member states disagree on the consequences of such a change. The OECD issued an interim report in March 2018 stating it would further analyse the issues and the complexities in developing policies in this area with a goal of producing a final report in 2020 and an update to G20 leaders in 2019. Some member states have expressed their preference to wait for the OECD’s long-term recommendations. The consultation on the UK’s new (limited) digital services tax closes in February, so the results of that, plus the OECD’s report and developments at an EC level will all be worth watching, and could result in genuine cross-border coordination in the taxation of the digital economy.

I have watched matches at more than 70 English and Welsh football league grounds in my quest to reach the fabled 92 club.