VAT groups - protection of
the revenue
Customs have announced it will not use its revenue protection powers to
challenge acceptable grouping structures.
The VAT grouping provisions allow Customs to prevent a company joining a VAT
group where this is necessary for the protection of revenue.
Customs will continue to challenge certain contrived structures such as
schemes designed so partly exempt VAT groups avoid paying VAT on bought-in
services.
These are usually referred to as A-B share schemes. This involves the
setting up of a company with 'A' shares and 'B' shares. Typically, while the
'A' shares may attract some dividend, the 'B' shares will entitle the third
party, a supplier, to all or the majority of the profits. The holding
company will have the right to appoint the majority of the board of
directors of the company, thus meeting the control criteria for eligibility
to VAT grouping.
As a general principle, Customs consider that the VAT grouping of two
corporate bodies (A and B) is acceptable where A’s corporate group either
receives or has the ability to control 50% or more of the 'economic
benefits' of running B's business, provided that the determination of the
'economic benefits' is not manipulated to divert benefits to a third party
through, for example, high management charges; special dividend payments or
other charges, payments or arrangements.
Customs will consider challenging any grouping structure which does not meet
this general principle, unless the amount of VAT revenue at stake is nil or
too low to justify action.
VAT Groups
Custom’s has clarified its policy on an application by a company to leave a
VAT group following the Court of Appeal decision in the case of Customs and
Excise v Barclays Bank PLC.
The Court of Appeal ruled in October 2001 that Customs were not obliged to
exclude a company from a VAT group as soon as the company ceased to be
controlled by the group holding company. As a result of this ruling, Customs
were able to prevent the company leaving the VAT group before section 25 of
the Finance Act 1995 came into effect on 1 March 1995. The Finance Act 1995
introduced an 'exit charge' for companies leaving a VAT group in certain
circumstances and would have applied in this case, increasing the amount of
VAT due from Barclays.
There are obvious concerns about keeping a company in a VAT group after the
company has been sold to a third party not least the commercial difficulties
this will cause. In practice, it should be rare for Customs to set a later
date. Normally Customs policy will be to agree the date requested by the
selling group. Customs will set a later date only if VAT avoidance is
involved or is likely to arise through obtaining an earlier date.
Italian VAT refunds
The European Commission has ruled that the delays in refunding VAT to
taxable persons not established in Italy by Italian customs is incompatible
with the Eighth VAT Directive on the common VAT system. It has therefore
decided to take Italy to the Court of Justice. The delays are currently
causing considerable difficulties for companies and other taxable persons
entitled to refunds of VAT paid in Italy.
Employee Share Schemes Act 2002
The Employee Share Scheme Act 2002 received Royal Assent on 7 November 2002.
Under the act a company will get a Corporation Tax deduction for money it
pays to a Share Incentive Plan trust, which is used to buy a block of its
shares for transfer to employees within ten years. This change will take
effect from 6 April 2003.
Taxation of savings
The Swiss Government has offered to impose a withholding tax, called a
'retention tax', on the income, which EU citizens derive from savings held
in Switzerland, and to share the revenue with EU Member States' exchequers.
Switzerland has offered to impose this tax at a rate of 35 per cent from the
first of January 2004, on condition that Luxembourg, Austria and Belgium
also apply a withholding tax at the same rate during the transitional
period.
In addition to applying a withholding tax, the Swiss will have to offer the
EU genuine exchange of information upon request and to give EU residents the
option of voluntary provision of information to their tax authorities as an
alternative to paying the withholding tax.
The Commission is seeking assurances from Switzerland, the United States,
Monaco, Liechtenstein, San Marino and Andorra (i.e. the six countries
mentioned in the conclusions of the European Council at Feira in June 2000)
that they will adopt measures equivalent to those adopted within the EU in
order to prevent a significant flow of capital away from EU Member States to
those countries.
Venture Capital Trusts
The Inland Revenue have published a guide setting out the principle features
of a VCT. This leaflet explains what VCTs are, the tax relief’s available to
investors, the conditions of Revenue approval of VCTs, the circumstances in
which the tax relief’s may be lost or withdrawn and the companies VCTs
invest in. If you would like a copy of the leaflet or would like to discuss
VCT’s or other tax effective investments please give us a call.
SMP
entitlement and the Introduction of SAP and SPP
From 6 April 2003, there are changes to the provision of statutory payments
and leave, including SMP and the new Statutory Adoption Pay (SAP) and
Statutory Paternity Pay (SPP). These changes will affect parents, including
adoptive parents, whose child is due to be born or placed with them on that
date.
The Revenue has prepared a list of potential issues to help in responding to
employee's queries regarding this issue.
Corporation Tax on Chargeable Gains: Indexation Allowance
The value of the retail price index for October 2002 is 177.9
Double Tax Agreements
Discussions are to be held between the United Kingdom and the Kingdom of
Saudi Arabia to negotiate a Double Tax treaty.
Draft regulations are also available in relation to Double Taxation relief
with South Africa and Taiwan.
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