January 11, 2018 / North America
As tax reform in the United States barrels forward, tax leaders of U.S. Multinational companies are already drowning in new calculations and planning concerns. But as they say, when it rains, it pours.
With the recent release of the Autumn Budget 2017, the U.K. government announced that it intends to apply withholding tax to certain payments for the exploitation of intellectual property (IP) and other rights, even where the payer has no taxable presence in the U.K. U.S. Multinationals, especially those in the tech sector, will likely be impacted by this proposal, as it targets multinational groups with intragroup arrangements that benefit from a lower effective rate due to an IP holding company located in a low tax jurisdiction. The most common structure likely to be impacted would be double-Irish and other similar IP holding structures.
With the constant stream of tax reform implications coming from not only the U.S., but now also from the U.K., what do tax leaders need to know about this proposal to keep their heads above water? The proposal not only targets traditional IP, but casts a wider net to include the exploitation of “other rights” yet to be defined. Presumably, this will include certain services rendered in the U.K. Where groups are found to be benefiting from a low tax jurisdiction, payments made for the use of IP or “other rights” will be subject to U.K. withholding tax on the portion of such payment that relates to U.K. sales, regardless of whether the payer actually has a traditional tax presence in the U.K.
In terms of compliance, any group member with a taxable presence in the U.K. would be obligated to report the withholding. In cases where no group member has a U.K. taxable presence, the payer would be required to register and submit returns to the U.K. Regardless of who reports, all entities in the group would be jointly and severally liable for the withholding tax.
Many portions of this proposal are yet to be determined…