Changes to the debt cap provisions
The measure comprises of 2 changes to improve the effectiveness of the World Wide Debt Cap. The first change is to the grouping rules and the second change is to the regulation-making powers. It will have effect in respect of the change to the grouping rules for accounting periods starting on or after 5 December 2013 and the change to the regulation-making powers will have effect on or after the date that Finance Bill 2014 receives Royal Assent.
Controlled foreign companies: profit shifting
The measure switches off the partial exemption rules for loan relationship credits of a controlled foreign company that arise from an arrangement with a main purpose of transferring profits from existing intra group lending out of the UK. It also amends the anti-avoidance rule relating to the transfer of external debt to the UK to ensure that the rule works as intended. The first part of the measure will apply to arrangements entered into on or after 5 December 2013 and the second part will have effect for accounting periods beginning on or after 5 December 2013.
Partnerships review: partnerships with mixed membership
The first element of the partnerships review measure will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner in circumstances where an individual member may benefit from those profits. The second element will affect cases where partnership losses are allocated to an individual partner, instead of a non-individual partner, to enable the individual to access certain loss reliefs. The changes will take effect from 6 April 2014 with the exception of anti-avoidance rules concerning tax-motivated profit allocations. These rules come into force from 5 December 2013 in order to protect against risks to tax revenue.
Avoidance schemes using total return swaps
The measure blocks avoidance schemes where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits. It will apply from 5 December 2013 to schemes entered into on any date.
Double Taxation Relief: revenue protection
The measure will make two changes to the Double Taxation Relief rules to prevent avoidance. Both changes will have effect from 5 December 2013. It will have effect on non-trading credits for accounting periods beginning on or after 5 December 2013, with transitional provisions where accounting periods straddle this date. The amendment to the rules on refunded tax credits will take account of payments made by the foreign tax authority on or after 5 December 2013.
Further details of these 5 measures can be found in the Written Ministerial Statement, Tax Information and Impact Notes, Draft Finance Bill 2014 Legislation and Explanatory Notes.
Other measures included are found below.
Charities established for tax avoidance purposes
Legislation will be introduced in Finance Bill 2014 to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the charity is tax avoidance. The definition of a charity for tax purposes will be amended to exclude such charities.
A new information disclosure and penalty regime for high risk promoters of avoidance schemes will be introduced. Objective criteria for identifying high risk promoters and a higher standard of reasonable excuse and reasonable care that will then apply to them will also be introduced. Clients of these promoters will also have certain obligations including identifying themselves to HMRC.
Follower penalties: users of failed avoidance schemes
This measure will introduce a new obligation for users of an avoidance scheme that HMRC have defeated in a tribunal or court hearing in another party’s litigation, to concede their position to reflect that decision. When there has been a relevant decision HMRC will issue a notice to all users of the scheme in question requiring them to amend their return or advise HMRC why they believe they should not. A tax-geared penalty would be charged if they failed to amend their return and it was subsequently found that the avoidance scheme they used failed on the same point of law. Taxpayers will be able to appeal against the penalty.
Accelerated tax payment in avoidance cases
Legislation will be included in Finance Bill 2014 to require payment of the tax in dispute in a tax avoidance enquiry when an ‘avoidance follower penalty notice’ is issued. This will take effect from Royal Assent which is expected mid July 2014.
At present taxpayers (in most cases) can hold on to the disputed tax while the dispute is being investigated. This can take a number of years, and there is evidence that some taxpayers enter into avoidance schemes primarily for the cash flow benefit.
The government will also consult on possible wider criteria for issuing a payment notice in avoidance enquiries.
This is aimed at preventing employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment. Existing legislation will be strengthened to ensure that the correct tax and national insurance contributions are paid where the worker is employed, from April 2014.
Offshore evasion strategy - enhancing deterrents
In early 2014 HMRC will launch a project to ensure it is ready to exploit data under the new exchange of data agreements. And at Budget 2014, HMRC will consult on a range of enhanced proposals to penalise those who hide their money offshore. This initiative underlines the commitment to pursue offshore evaders and to increase the deterrence for would-be evaders.
Legislation will be introduced in Finance Bill 2014 to prevent a small number of high earning non-domiciled individuals from avoiding tax by creating an artificial division of the duties of one employment between contracts in both the UK and overseas. These are commonly known as ‘dual contracts’.