Multinationals: A Practical Perspective on Key Tax Developments 2014

1. Multinationals: A Practical Perspective on Key Tax Developments 2014 16 January 2014 Jim Harra

2. UK Competitiveness • Government aims to create the most competitive corporate tax regime in the G20 • CT rate reduced to 23 per cent now and to 20 per cent by 2015. • Introducing a Patent Box. • Further enhancing R&D tax credits - new, internationally competitive ‘above the line’ R&D credit introduced for large companies. • Introducing significant tax reliefs to support our creative sectors. • Move from a worldwide taxation approach to a broadly territorial system (incl. CFC reform).

3. UK Competitiveness (cont’d) • More competitive CT regime - significantly increased interest from MNEs in using the UK as a HQ location • We see two types of transaction: • reorganisation of a supply chain involving a number of different countries with the aim of increasing the UK’s share of the total profit (“UK hub”), and • moving the tax residence of all or part of the business to the UK (re-domiciling). • Certainty of tax treatment very important • HMRC offering a coordinated and prioritised process for providing clearances together with a single point of contact. • We are keen to ensure that businesses and advisers understand the Government’s aim of using CT reform to encourage UK growth and investment, and therefore we need to understand the commercial drivers for the transaction.

4. Base Erosion and Profit Sifting – “BEPS” • 11 May 2013 the Chancellor closing the G7 conference said: • “Finally, we discussed the need to ensure that international tax rules are fit for the modern global economy. For Britain, I am committed to a competitive tax system that promotes growth, but I’m also determined that tax that is owed must be paid. • 10 June 2013 the Prime Minister on the G8 agenda of transparency, trade and tax said: • “At the G8 I’m going to push for international agreements to fight the scourge of tax evasion and aggressive tax avoidance.”

5. The BEPS action plan – an overview • Developed between February and July 2013 • Wide international consensus – OECD plus BRICs • Political and financial support • Published in July setting out 15 actions to address the issue • Short time scales – in OECD terms • Delivery between September 2014 and December 2015 • Work carried out through OECD working parties

6. Hybrids “To neutralise the effects of hybrid mismatch arrangements” • Focus - developing domestic rules which neutralise the effect by stopping double non-taxation/deduction from hybrid instruments and hybrid entities. • Aim: to ensure that there is a single taxable receipt for each tax deductible payment. • In line with the general nature of the Action, there is no intention to include a purpose test in the rules. • Areas for discussion include the scope of the rules, and whether the default rule should be denial of deduction or forced inclusion. • Plan: circulate proposals for comment to business during April 14, consultation to take place during May 14 and for the Hybrids Report to go to CFA in June 14. Completion September 2014 • Very tight timetable – key to ensure we get the scope of the rules right – business input vital.

7. Country by Country Reporting • The BEPS action plan  requires that MNEs provide governments with information setting out their global allocation of income, economic activity and taxes paid according to a common template. • An important part of the transparency agenda that carries political support at the highest levels. • This is a risk assessment tool that will be available to all the countries in which an MNE operates. • HRMC wants to ensure that it provides useful information to tax administrations but also does not impose a significant additional compliance burden on business. • Business input is very important to enable us to get that balance right. • We are actively consulting with industry groups and individual companies. • Work due to complete by September 2014.

8. Thank you