As part of the UK’s Autumn Budget, Chancellor Rishi Sunak announced that certain “tax administration and maintenance announcements” would follow – they followed on 30 November in a manner similar to tax policies and consultation announcements during the Tax Day which followed the spring budget. The way in which the command paper sets out that it “builds on the approach the government took in March” and “will help Parliamentarians and wider stakeholders to better scrutinise tax policy” makes me think that the approach of a Budget followed by the announcement of a host of further tax policy publications a few weeks later may be here to stay. Out of the c. 30 TAMD publications, I want to highlight three - and one measure which is notable for the absence of further detail.
DAC6 replacement proposal extends look-back
You will remember that, with a sense of timing that may have left some practitioners in tears, it was announced shortly after Christmas 2020, just before the end of the transition period, that the UK would scale back its implementation of DAC6 such that only arrangements falling within hallmark D (Specific hallmarks concerning automatic exchange of information and beneficial ownership) would ever have to be reported to HMRC. We were then promised that this scaled-back DAC6 implementation would in due course be replaced with made-in-the-UK rules based on the OECD’s model rules. Draft regulations to fulfil this promise have now been published. They are accompanied by a consultation document and comments can be submitted until 8 February 2022.
In determining the scope of the reporting obligation, the draft regulations unsurprisingly borrow heavily from the OECD’s model rules. As these cover essentially the same ground as DAC6 hallmark D, one would not expect that significant adjustments to compliance processes will be required in this regard – although they may be required in respect of the look-back: the government is proposing an extended look-back to October 2014 (as compared to June 2018 under DAC6), albeit subject to certain limitations and mitigations intended to lessen “additional burdens on business”. It will be necessary to scrutinise the draft regulations and consultation in detail to make sure that there are no other bear traps where moving from an EU to an international model could increase compliance cost.
Transfer pricing: master and local file requirement, but no IDS
The outcome of the consultation on transfer pricing documentation which was launched on Tax Day is that the government will publish draft legislation in 2022 (presumably, for inclusion in the Finance Bill 2023) to require HMRC’s “largest customers” (meaning, presumably, companies or groups that meet the country-by-country reporting threshold alignment with which the government considers “a reasonable, effective and proportionate approach”) to maintain a master and local file in accordance with OECD standards, and provide these on request.
The consultation also looked at a potential requirement to produce an international dealings schedule (IDS) recording certain data on intra-group cross-border transactions in a manner that can easily be interrogated by HMRC’s system to conduct transfer pricing risk assessments. Fortunately, based on feedback concerning additional cost and administrative burden, in particular given that existing internal reporting systems would not necessarily capture the relevant data automatically, this proposal has been shelved for the time being.
Improving large business tax administration
In response to stakeholder engagement on large businesses’ experience of HMRC’s compliance activity, HMRC is working on a number of improvements:
- Development of “Guidelines for Compliance” to provide “practical guidance and greater transparency on the approaches HMRC regards as higher or lower risk” by mid to late 2022. This will be coupled with work on improving HMRC’s technical guidance where HMRC intends to work with stakeholders to identify priority areas.
- Work to agree objective indicators to identify long-running enquiries and develop a process for their resolution in early 2022.
- HMRC will work with businesses during 2022 to ensure that co-operative compliance best practice is delivered more consistently.
HMRC will also work on improvements to the process of issuing certificates of tax residence and its approach APAs and MAP in order to better support cross border trade and movements of business.
Notable for its absence: online sales tax
Following the Autumn Budget announcement that the “government will also continue to explore the arguments for and against a UK-wide Online Sales Tax”, the arguments seem to have come down in favour of not progressing any public work on this for the moment. The command paper promises a consultation in 2022. This is unsurprising; I suspect the government is awaiting the outcome of further technical work on the OECD’s international tax reform proposal.
As my colleague Zoe Andrews and I mentioned during the November 2021 edition of our Tax News Highlights podcast, the OECD/IF statement of 8 October stressed that the multilateral convention to bring into force Pillar One will commit signatories to roll back existing, and not enact further, digital services taxes “or other relevant similar measures” and designing an online sales tax to fall outside this is likely to be rather difficult. This message was reiterated by a panellist’s suggestion during the IFA 2021 conference that the definition of “relevant similar measures” will be a key point in ongoing OECD/IF technical work.