Autumn Budget 2017—Finance
This analysis is part of the Lexis®PSL Tax team’s summary of the Autumn Budget 2017. Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.
Stamp duty and SDRT– 1.5% charge on the issue of shares
The government has helpfully confirmed that it will not seek to apply the stamp duty and SDRT 1.5% charge on the issue of shares (and transfers integral to capital raising) into overseas clearance services and depositary receipt issuers once the UK has exited from the EU.
FA 1986 contains provisions that apply a 1.5% charge in these circumstances, but case law (and HMRC practice that aims to comply with EU law) have restricted the scope of these provisions (see Practice Note: Higher rate SDRT and stamp duty charges).
Corporate interest restriction
Some technical amendments are being made to the corporate interest restriction rules (CIR) that were brought in by Finance (No 2) Act 2017 (see Practice Note: Corporate interest restriction). The changes result from discussions with business and aim to ensure that the restriction regime works as intended. Some of the changes will take effect retrospectively from 1 April 2017 (in line with the main rules), and others from 1 January 2018.
FB 2018 and FB 2019 will make amendments to:
- the rules around relevant derivative contract debits and credits (which feed into the definitions of tax-interest and group-interest) to ensure that derivatives which hedge a financial trade that is not a banking business are not inappropriately taken out of the CIR by the exclusion for derivatives hedging trading risks (TIOPA 2010, ss 384, 387, 411–412)
- the calculation of group-EBITDA, to align the treatment of R&D expenditure credits with the approach taken in the calculation of tax-EBITDA (TIOPA 2010, s 416)
- various aspects of the infrastructure rules, to:
- ensure that insignificant amounts of non-taxable income do not affect the operation of the exclusion (TIOPA 2010, ss 433, 436)
- change the time limit for making an election to be a qualifying infrastructure company to the last day of the accounting period where the election would first apply (TIOPA 2010, s 434)
- prevent a third party which acquires an asset from a qualifying infrastructure company from being automatically treated as making an election to be a qualifying infrastructure company (TIOPA 2010, s 434)
- ensure that the limitation on relief for related party interest cannot be avoided by using a conduit company to provide the finance (TIOPA 2010, s 438)
- the definition of a group, to align it with accounting standards and to ensure that asset managers do not cause otherwise unrelated businesses to be grouped together (TIOPA 2010, s 475), and
- the administrative rules, so that when an interest restriction return is submitted companies will be required to amend their company tax returns if their tax position has changed as a result (TIOPA 2010, Sch 7A, para 70)
See: OOTLAR (para 1.20) and TIIN: Corporation Tax: amendments to the corporate interest restriction rules.
Hybrid mismatch rules
FB 2018 will include legislation making minor amendments to the hybrid rules (see Practice Note: Hybrid and other mismatches and UK rules counteracting hybrid mismatch arrangements—table). The changes were identified as necessary following informal consultation with stakeholders and are not intended to make any changes to the scope of the regime but are meant to clarify when and how the rules apply and to ensure they operate as intended. The amendments will broadly do the following:
- disregard taxes charged at a nil rate
- clarify the scope of the legislation in relation to multinational companies
- take capital taxes into account in relation to hybrid instruments, hybrid transfers and CFCs
- apply a proportional counteraction to entities which are seen as hybrids by some investors, but as transparent by others
- clarify that withholding taxes are to be ignored for the purposes of the regime
- take account of certain transactions, which do not generate a tax deduction for the payer but give rise to a taxable receipt for the payee, when quantifying certain mismatches
- align the imported mismatch rules with the other chapters by confirming that dual inclusion income can be taken into account in certain circumstances, and
- take into account certain accounting adjustments which effectively reverse counteracted hybrid mismatches in earlier periods
The changes relating to taxes charged at a nil rate and multinational companies take effect from 1 January 2018. The remaining changes apply from 1 January 2017, when the regime was introduced.
See: Autumn Budget 2017 (para 3.36), OOTLAR (para 1.22), and TIIN: Corporation Tax: amendments to the hybrid and other mismatches regime.
Withholding tax exemption for debt traded on a multilateral trading facility
As announced at Spring Budget 2017, and following consultation, provisions in FB 2018 will remove the requirement to withhold tax on interest payments where debt is traded on a multilateral trading facility (MTF) that is operated by an EEA-regulated recognised stock exchange (see Practice Note: Exemptions and reliefs from UK withholding tax on yearly interest).
Following the consultation, it was also decided to widen the definition of alternative finance investment bonds (AFIBs) (which are Shari’a-compliant financial instruments, also known as ‘sukuk’) to include securities which are admitted to trading on such an MTF so that these will also fall within the rules that treat AFIBs as debt, and the return on them as interest, and qualify for exemption from withholding.
Draft provisions for inclusion in FB 2018 were published on 13 September 2017, along with explanatory notes and a TIIN, and these remain unchanged.
The changes are intended to remove a barrier to the development of UK debt markets and will apply to interest payments made on or after 1 April 2018. The amendments in relation to AFIBs will have effect for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2018 and, for income and CGT purposes, from 6 April 2018.
Bank levy re-scope
As announced at Summer Budget 2015, and following a subsequent consultation, draft FB 2018 clauses changing the scope and administration of the bank levy were published on 13 September 2017 (see News Analysis: Draft legislation for FB 2018—Bank levy). The changes:
- limit the scope of the bank levy to the equity and liabilities recognised on the UK balance sheets of banks and building societies (rather than their worldwide balance sheets as is currently the case)—this will apply to chargeable periods ending on or after 1 January 2021, and
- simplify certain aspects of the administration of the bank levy—these changes apply either from Royal Assent to FB 2018 or to chargeable periods ending on or after 1 January 2018
The government announced that the draft legislation has been changed to include a number of technical changes to the bank levy calculation. We expect these changes to be published as part of the publication of the FB 2018 on 1 December 2017.
See: OOTLAR (para 1.27).
Stamp duty and SDRT– financial institutions bail-in exemption
FB 2019 will contain provisions that exempt certain transfers of shares from failing financial institutions to public bodies and creditors from stamp duty and SDRT. The exemption will be limited to the temporary transfer of shares to a bridge entity and the transfer of shares in exchange for temporary certificates issued to creditors that identify their entitlement to the shares under the UK special resolution regime for managing failing financial institutions. Similar provisions will apply to SDLT.
- SUMMARY OF KEY ANNOUNCEMENTS AND BACKGROUND
- BUSINESS AND ENTERPRISE
- INCENTIVISED INVESTMENT
- EMPLOYMENT TAXES AND SHARE INCENTIVES
- REAL ESTATE TAXES
- TAX ADMINISTRATION AND AVOIDANCE
- ENERGY AND ENVIRONMENT
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