Chapter 69 – International Tax: Introduction and Connecting Factors
69.3 UK Connecting Factors: Individual’s Residence. In counting days for the statutory residence test, if P is present in the United Kingdom at the end of a day, that day counts as a day spent by P in the United Kingdom. However it does not do so if ‘exceptional circumstances’ beyond P’s control prevent P from leaving the United Kingdom; and P intends to leave the United Kingdom as soon as those circumstances permit (Sch 45 para 22(4)). Examples of circumstances that may be ‘exceptional’ are: (i) national or local emergencies such as war, civil unrest or natural disasters; and (ii) a sudden or life-threatening illness or injury: Sch 45 para 22(5). The test for ‘exceptional’ is an entirely objective one, and objectively commonplace circumstances do not become ‘exceptional’ by adding a moral obligation (such as the taxpayer's decision to care for her sister): HMRC v A Taxpayer [2023] UKUT 182 (TCC).
69.5.1 Meaning of Domicile: There have been a number of cases recently where the First-tier Tribunal has had to analyse claims of domicile of choice, generally finding against the taxpayer’s claim after a detailed scrutiny of the taxpayers’ affairs: on this modern approach see Coller v HMRC [2023] UKFTT 212 (TC), Shah v HMRC [2023] UKFTT 539 (TC), and I Strachan v HMRC [2023] UKFTT 617 (TC).
69.6. Residence of Corporations. For a recent case considering the relationship between domestic law and treaties on the question of corporate residence (and carrying on a business) see GE Financial Investments v HMRC [2023] UKUT 146 (TCC).
69.11 Base Erosion and Profit Shifting (BEPS). The OECD Inclusive Framework Pillar 2 project has moved into the implementation stage. In Finance (No 2) Act 2023, the UK introduced a multinational top-up tax and domestic top-up tax, with effect in relation to accounting periods commencing on or after 31 December 2023. These detailed and complicated rules implement the UK’s commitment to introduce an Income Inclusion Rule (IIR) and Qualifying Domestic Minimum Top-up Tax (QDMTT) in line with the approach agreed with international partners under the Pillar 2 model rules. The Pillar 2 model rules are designed to ensure that very large multinational companies pay a minimum level of tax in each jurisdiction in which they operate. Finance Act 2024 made further changes to the operation of the rules. For the latest on the Pillar 2 project see the OECD Tax website:
Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) - OECD
Chapter 70 – Enforcement of Foreign Revenue Laws
70.1 General Rule: No Enforcement. In Skatteforvaltningen (SKAT) v Solo Capital Partners LLP (in special administration) and others [2023] UKSC, the Supreme Court held that the ‘revenue rule’ and the ‘sovereign authority rule’ did not prevent the Danish tax authority (SKAT) from seeking to recover money defrauded from it in the ‘cum-ex’ dividend scandal via the English courts.
Chapter 71 – UK Residents and Foreign Income
71.3.2 Entities. HMRC issued updated guidance on the treatment of profits arising within, and distributions from, US limited liability corporations (LLCs) in INTM180000–180050 post-Anson. Readers are also directed to the current note by John Avery Jones in issue 1 of BTR 2024.
71.4 Remittance Basis for Relevant Foreign Income and Chargeable Gains. At the Spring Budget 2024, the Chancellor announced the abolition of the remittance basis regime for non doms, replacing it with a temporary residence-based regime under which individuals will not pay tax in respect of foreign income and gains arising in their first 4 years of UK tax residence. However, these changes did not make it into the Finance (No 2) Act 2024 so the fate of the non-dom regime will be in the hands of the next government.
71.4 What is a Remittance? The Current Rules. In Sehgal and another v HMRC [2024] UKUT 74 (TCC) , arrangements under which the taxpayers settled a debt indemnity arising from a share sale did not give rise to a remittance to the UK because the right to the waiver was not property and did not itself derive from a chargeable gain. 71.6. Anti-avoidance: Transfer of Assets Abroad–Attribution of Income for Income Tax. In Hoey and others v HMRC [2022] EWCA Civ 65, the Court of Appeal considered, briefly, the interaction and priority between the TOAA code and the charge to tax on employment income, as well as the possibility of double taxation. Many aspects of the interpretation and application of the transfer of assets abroad legislation, including compatibility with EU law, were considered in Revenue and Customs Comrs v Fisher [2021] EWCA Civ 1438. The CA’s decision was overturned by the Supreme Court on the grounds that the transferor provision did not apply to directors or shareholders in a company making a transfer, which meant the Supreme Court did not need to consider the other issues analysed by the CA: see HMRC v Fisher [2023] UKSC 44. The legislation at issue was the former ICTA 1988 s 739 (now ITA 2007 s 720 et seq) and not ITA 2007 s 739 as incorrectly stated in the textbook. At Spring Budget 2024, the Chancellor announced his intention to amend the TOAA rules to catch transfers effected by a closely-held company (and reverse the result in Fisher)—for more see Finance (No 2) Bill s 22.
Chapter 72 – Source: The Non-resident and the UK Tax System
72.5 Advance Pricing Arrangements. In R (on the application of) Refinitiv Ltd and others v HMRC [2023] UKUT 257 (TCC), the Upper Tribunal held that HMRC is not bound by the terms of an APA in subsequent periods, and therefore could assess the taxpayers using a different transfer pricing methodology from the one previously agreed.
72.7 Diverted Profits Tax. The DPT rate increased to 31% in 2023, reflecting the rise in the main corporation tax rate.
Chapter 76 – Double Taxation: UK Treaty Relief
76.3. Interpretation of Treaties. For an interesting case on interpreting Article 6 of the UK-Canada tax treaty, including taking into account both the English and French versions, see Royal Bank of Canada v HMRC [2023] EWCA Civ 695. Note at the time of writing this case was under appeal to the Supreme Court.
76.5.4 Beneficial Ownership. For a recent example of how UK courts approach beneficial entitlement to interest see Hargreaves Property Holdings Ltd v HMRC [2024] EWCA Civ 365.
Chapter 77 – European Union Tax Law
77.1.2 State Aid. In the joined cases of Luxembourg v Commission (Case C-451/21) and P Engie Global LNG Holdings and others v Commission (Case C-454/21) (5 December), the CJEU annulled the Commission’s finding that Luxembourg had granted unlawful state aid to Engie.
77.2.1 Positive Harmonisation. Recent EU developments of note include the European Commission issuing proposals for two Council Directives: one on Business in Europe: Framework for Income Taxation (BEFIT) and one on transfer pricing. BEFIT, the successor to the failed CCCTB project, aims to provide common rules for determining the corporate tax base for EU-based large MNEs. Whether it will garner more support from the member states than the CCCTB initiative remains to be seen. The Commission also proposed a Directive establishing a ‘head office tax system’ for SMEs, which is intended to give SMEs operating cross-border through permanent establishments the option to comply only with the tax system of the head office rather than with the tax systems of multiple member states.
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