A proposed Directive was published by the European Commission on 22nd December 2021 in order to prevent “shell entities” that are based in the EU member states from the entitlement to particular tax benefits granted by other EU Directive and member states’ double tax treaties.

Should the proposed Directive be adopted, it will be implemented on 01st January 2024 – a point to be noted is that initiative is known as to “Unshell”.

The proposed new measures will allow for misuse of shell entities to be easily detected by tax authorities due to the introduction of new transparency standards. The proposal also intends to help national tax authorities detect entities that exist with insufficient commercial substance to merit access to tax benefits..

The draft Directive sets out three “gateways”:

• The first gateway looks at the activities of the entity based on the income it receives.
• The second gateway requires a cross-border element.
• The third gateway focuses on whether corporate management and administration services are performed in-house or are outsourced.

If an entity passes through all three gateways, then it will be required to report information in its tax return.

The entity must also be able to show:

1. it has at least one director resident in its member state, the director is not provided by a service provider.
2. the majority of its full time employees are resident in the member state or live close to it and are qualified to carry out the undertaking’s relevant income generating activities.

There are exceptions from these rules for certain regulated, holding or for example companies with 5 full time employees!

If you have any further questions following this article, please contact a member of our team.

In a bid to ease pressures from COVID-19, HMRC have announced that the following penalties for 2020/21 will be waived:

• anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February
• anyone who cannot pay their Self-Assessment tax by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April

Interest will be payable from 1 February, as usual, so it is still better to pay on time if possible.

Self-Assessment timeline:

• 31 January – Self Assessment deadline (filing and payment)
• 1 February – interest accrues on any outstanding tax bills
• 28 February – last date to file any late online tax returns to avoid a late filing penalty
• 1 April – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty
• 1 April – last date to set up a self-serve Time to Pay arrangement online

The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.

The report can be found here

Main Budget proposals

Tax measures include:

• a change in the earliest age from which most pension savers can

access their pension savings without incurring a tax charge. From

April 2028 this will rise to 57

• individuals disposing of UK property on or after 27 October 2021

now have a 60 day CGT reporting and payment deadline, following

• the retention of the £1 million annual investment allowance until

31 March 2023

• a new temporary business rates relief in England for eligible

retail, hospitality and leisure properties for 2022/23

Should you need any further help or support please contact us.

In a recent tax case it was found that foreign tax credits did not apply against the net investment income tax (NIIT). In summary, the structure of the Internal Revenue Code made the credit inapplicable to the NIIT, and tax treaties did not override that fact.

Each year, the IRS produces a list of “Dirty Dozen Tax Scams” to warn the public of the worst ways taxpayers are being scammed. The IRS has placed certain Malta-based pension plan arrangements on this list. The IRS warns that it is evaluating the validity of such arrangements and may challenge the tax treatment of Maltese pension plan contributions and distributions. IR-2021-144 (July 1, 2021).

The types of pension arrangements that have attracted IRS attention involve a U.S. citizen or resident who contributes appreciated assets to a Maltese pension plan, sells the assets within the plan, and receives a distribution of proceeds relating to the asset sales from the plan. Relying on an interpretation of the U.S.-Malta Income Tax Treaty, U.S. citizens and residents, and their advisors, take the position that the transactions, both the realized gain and distributions, are not subject to tax.

Participants in Maltese pension plans should be aware that the IRS is scrutinising tax positions and treaty interpretations related to these plans. The appearance of an arrangement on the “Dirty Dozen” leads to increased IRS activity, and participants in Maltese pension plans should prepare to defend their tax reporting positions.

Although, the elimination of the $10,000 cap on individual taxpayers’ ability to deduct state and local taxes was not mentioned in the proposal; there is talk of this being added to the final version of tax changes before implementation.

If you have any questions, please feel free to contact our team.

On September 13, 2021, proposed tax changes were released as part of the reconciliation bill by the House Ways and Means Committee – this reconciliation bill is familiarly known as ‘Build America Back Better’.

The proposed tax changes apply for both individuals and business which include: –

A recent judicial review case (Murphy v HMRC [2021] EWHC 1914 Admin, 13 July 2021) confirmed HMRC’s view that UK resident beneficiaries who receive discretionary income payments from offshore trusts can only claim relief for income tax paid by the trustees on income that arose in the 6 years before the end of the tax year in which the payment to the beneficiary was made.

The decision turned on the interpretation of an extra statutory concession (ESC18) which concerns the income tax credit available on discretionary payments out of both UK and non-UK resident trusts. The taxpayer had argued that the concession did not impose a time limit on UK residents but the decision confirms that payments to a UK resident from a non-UK trust are subject to the same 6 year time limit for claiming credit for income tax already paid, as applies to non-UK resident beneficiaries of a UK trust. The decision also shines a spotlight on the authority of HMRC concessions, emphasising that they can only be relied upon if they are absolutely clear in scope.

The UK’s implementation of the EU Fifth Anti-Money Laundering Directive requires the majority of Trusts to be registered with HMRC by September 2022. The Trust Registration Service (TRS) became available on 1 September 2021, for non-taxable trusts to register with HMRC, as opposed to previously when just taxable Trusts had to be registered. This includes existing Trusts (many of which may have run for decades with little or no “professional” interference) and any future Trusts, which must now be registered within 90 days.

The new requirement catches many more types of Trusts; declaration of trusts where parents hold property for their children, and common “protection” trusts in Wills whereby a spouse has a life interest in a property, or a nil rate band trust is set up. It will be the duty of the Trustees to register these Trusts, however, everyone should be encouraged to question their own circumstances and whether there is anything that may be caught by these requirements.

HMRC have clarified the deadline for trustees to register non-taxable trusts, including all UK express trusts and some non-UK trusts holding UK property, due to delays with the service. Please contact us if you require further assistance.

The new deadlines are:

• Non-taxable trusts in existence on or after 6 October 2020: by 1 September 2022.
• Non-taxable trusts created after 1 September 2022: within 90 days.
• Trusts created within 90 days of 1 September 2022 have 90 days to register.
• Changes to trust details and/or circumstances: within 90 days of the change.

Certain specific trusts are excluded from registering as are bare trusts and deeds of trust between spouses in connection with Joint property ownership, as these are not classed as express trusts for these purposes.

Family investment companies (FIC) have been increasingly used to hold family assets and to pass wealth to the next generations. Well-structured FIC’s allow adult children to become involved with the management of assets without taking the complete control of the FIC’s. This can have both short-term tax advantages as well as long term potential inheritance tax advantages.

In 2019 HMRC set up a unit to investigate potential loss of inheritance tax. This unit looked at FICs and carried out a quantitative and qualitative review into any tax risks associated with such entities, with a focus on inheritance tax implications.

The investigative unit has been closed down after failing to find any correlation between the use of FIC’s and non-compliant behaviour. They, however, have not confirmed that they have no intention of introducing anti-avoidance legislations in the future. FIC’s, therefore, remain an active option however the prospects of future changes cannot be ruled out.