Tax Briefing 17 September 2014
Tax Briefing 17 September 2014
Speakers and Agenda
Gregory Jones - Director, Gibraltar UK Tax Update
David Parsons – Associate Director, Isle of Man Global Exchange of Information
Alejandra Sanchez- Senior Tax Manager, Malaga Spanish Tax Reform Update
Darren Anton – Senior Tax Manager, Gibraltar Gibraltar Tax Update
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UK tax update
Gregory Jones
IHT: Simplifying charges on trusts
•
Three main occasions when IHT may be charged in relation to trusts: on creation of a trust (“entry charge”); on each ten-year anniversary from when the trust was set up (“periodic charge”); and when assets are transferred out of the trust or the trust comes to an end (“exit charge”).
• HMRC consultation focuses on simplifying the existing regime of calculating periodic and exit charges. • The proposed changes will impact fundamentally on planning using pilot trusts. © 2014 KPMG Advisory Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative “KPMG International”, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted.
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IHT on trusts: Existing rules and proposed changes
Existing Rules •
IHT nil rate band available to a trust is £325,000 (2014/15) but this is reduced to take into account:
“related settlements”; and
the historic value of the settlor’s chargeable transfers in the 7 years prior to the creation of the trust.
•
The calculation of the periodic charge is further complicated by the need to take account of “non-relevant property” and assets that have not been relevant property for the full ten years preceding the charge.
•
The tax is calculated at 20%. It is then necessary to work out what the effective rate of tax is and the value in the trust is then charged to IHT at 30% of that effective rate.
Proposed Changes •
Options for simplification include:
ignoring settlor’s previous chargeable transfers;
ignoring non-relevant property;
splitting the nil-rate band by the number of relevant property settlements which the settlor has made (introduction of a “Settlement Nil Rate Band”); and
a simple flat tax rate of 6%.
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IHT: Comparison of current and proposed new
rules
Background facts Trust 1 settled in 2001 Trust 2 settled in 2003 Trust 2 non-relevant property settled in 2003 Value of Trust 2 relevant property at ten year anniversary
175,000 350,000 175,000 250,000
Existing rules
Proposed changes
Trust 1: ten year anniversary in 2010
£
Trust 1: ten year anniversary in 2010
Trust 1: value of relevant property
175,000
Trust 1: value of relevant property Less: NRB (£325,000/2)
No previous transfers No related or non-relevant property Less: NRB
£ 175,000 (162,500) 12,500
(325,000) Charge on Trust 1
Charge on Trust 1
£750
0
Trust 2: ten year anniversary in 2012 Trust 2: ten year anniversary in 2012 Trust 2: value of relevant property Historic value of non-relevant property Hypothetical transfer Less: NRB Value of settlor cumulative total gifts
250,000 175,000
250,000 (162,500)
425,000 (325,000) 175,000
87,500 (150,000)
Value to determine rate of tax
Trust 2: value of relevant property Less: NRB (£325,000/2)
Charge on Trust 2
£5,250
275,000
Tax @ 20%
55,000
Effective rate of tax (55,000/425,000)
12.94%
Settlement rate
12.94% @ 30%
3.882%
Charge on Trust 2
£250,000 @ 3.882%
£9,705.88
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IHT: The end for pilot trusts?
•
Settlors are currently able to set up multiple settlements (or “pilot” trusts) which, if they are not created on the same day are not “related settlements” for IHT purposes: each thus qualifies for its own unrestricted nil-rate band.
•
Pilot trusts are set up during lifetime with a nominal amount and then at some point in the future assets up to the value of the NRB are added to each trust to create multiple NRB trusts. Provided the growth in value keeps within the NRB of the day, there is no IHT on distribution or on ten-year anniversaries.
•
For example
Day 1 - £10 to Trust 1
Day 2 - £10 to Trust 2
Day 3 - £10 to Trust 3
Day 4 - £108,323 (or property to that value) to each Trust (Total settled - £324,969)
Assume on first 10 year anniversary, each trust is worth £500k.
•
No IHT due on creation of above trusts: total settled funds below settlor’s NRB.
•
No IHT due on any distributions from the above trusts in first 10 years as they will be charged at the nil rate.
•
The new rules propose to divide the NRB by the number of settlements in existence which would mean that it would no longer be tax advantageous to create multiple trusts. In the above example, this would mean each of trusts above would be subject to additional IHT of £13,000 (Total savings - £39,000 on 1st ten year anniversary).
•
Greater savings may be achieved by setting up more pilot trusts. Using the above example, if 4 trusts were set up on consecutive days, total settled £324,969 on day 5 (split evenly between trusts) and total value of trusts on first 10 year anniversary £1.5m as above. Total IHT savings would be £43,875.
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Section 739 ICTA 1988 Case Seesurrun v IRC
•
Mr & Mrs S UK res/ non-dom – in business of providing residential care to elderly via 3 UK Cos
•
They owned the premises from which the Cos operated
•
Formed 2 IOM trusts each with underlying company
•
Transferred properties and UK companies into structure
•
Mr & Mrs S excluded as beneficiaries but drew substantial loans from structure
•
Rent and dividends paid up from UK Cos into the structure – HMRC argued this taxable under s739 ICTA 1988 (now s720 ITA 2007)
•
FTT agreed – even though Mr/ Mrs S formally excluded
had “power to enjoy” income through associated operations, being dividends declared and monies borrowed income received by IOM Cos increased value of debts owned to Mr/ Mrs S they received capital sums (being the loan and consideration monies)
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Group structure - Section 739 ICTA 1988 Case
Mr S
Mrs S Churchill Ltd (UK)
RS Trust (IOM)
GS Trust (IOM)
Rent £
Dividends £
Manor Court
Drake Court
Goldthorn Court
Dividends £
Mannville Ltd (IOM)
Calinda Ltd (IOM)
Churchill Court
Dividends Rent £ Manor Ltd (UK)
Ashleigh Ltd (UK)
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Use of foreign collateral to secure UK loans: withdrawal of HMRC concession
•
Relates to UK res non-doms with unremitted foreign income/ gains
•
Generally the use of foreign income/ gains as collateral for UK debts = a taxable remittance
•
Servicing a debt from foreign income etc also = a taxable remittance
•
In practice HMRC has not pursued remittance of collateral provided debt serviced from foreign income etc or non-taxable sources: latter “masks” the collateral: see RDRM33170
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Use of foreign collateral to secure UK loans: withdrawal of HMRC concession (continued)
•
HMRC have withdrawn concession from 4 August 2014
•
Where foreign income etc used as collateral for UK debt, this now = a taxable remittance
•
Servicing of debt from different foreign income etc also = a taxable remittance
•
Arrangements in place prior to 4/8/2014 – HMRC will not pursue provided: collateral changed to non-foreign income etc, or loan repaid by 5/4/2016
•
What if you can’t change collateral/ repay loan – when does remittance take place?
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Restricting non-residents’ entitlement to UK personal allowances •
UK personal allowance = income tax-free band (£10,000 for 2014-2015)
•
NB: where income exceeds £100,000 allowance reduced by 50% of excess
•
Otherwise available in full to all UK residents
•
Available at present also to following:
•
EEA nationals Residents of IOM/ Channel Islands Former UK residents living abroad for health reasons Current/ former Crown employees Employees of overseas dependencies Missionary employees Individuals in certain Treaty jurisdictions
HMRC proposing to restrict entitlement going forward
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Restricting non-residents’ entitlement to UK personal allowances (continued)
Why change? The stated reasons:
•
Most other countries less generous
Eg Belgium, Canada, Denmark, Germany, Netherlands etc - all restrict
Australia, Israel, Japan, Russia, Switzerland, US – deny altogether
Can distort individuals’ taxable UK footprint (eg where UK earnings equal to personal allowance but there are also overseas earnings)
Can discriminate unfairly against non-EEA nationals
The real reason? (Costs £400m pa …..)
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Restricting non-residents’ entitlement to UK personal allowances (continued)
•
Proposals for change:
UK income should represent a minimum % of global income (75% or 90% - common among other countries: HMRC’s preferred approach OR Minimum Effective Rate (too much admin?) OR Total restriction (too harsh/ not business friendly) •
Winners and losers? No economic impact on most people – affects where they pay tax, not how much Losers: anyone who cannot get credit for the UK tax in own country
Winners: no-one! •
Possible de minimis for those with “very low global incomes”
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Implementing a capital gains tax charge on non-residents
•
Announced December 2013, consultation launched March 2014, ended June 2014
•
CGT generally payable only by UK residents (but nb ATED-related CGT introduced wef April 2013)
•
HMRC wants to charge CGT on all disposals of UK residential property in respect of gains arising from 6 April 2015
•
Would bring into line with other countries eg (max rates) Australia 45% Canada 24.8% France 48.83% (exempt after 30 years) Germany 42% (exempt after 10 years) Italy 43% (exempt after 5 years) Spain 19% USA 19%
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Implementing a capital gains tax charge on non-residents (continued)
•
Scope of proposed new charge: No exemption for property rental businesses No exclusion for multiple dwelling transactions No exemption for partnerships, trusts etc No tax on disposals of interests in property funds satisfying Genuine Diversity of Ownership “GDO”) test
No tax on pension funds No tax on foreign REITs if equivalent to UK REITs No tax on foreign shareholders in UK REITs “Tailored approach” for non-resident property investment companies (?)
Limited Principal Private Residence Relief (“PPR”) exemption Rate generally 18% or 28% Withholding tax delivery mechanism •
See various working party meetings
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Implementing a capital gains tax charge on non-residents (continued)
•
HMRC/ Private Sector working parties have considered a number of specific areas
•
PPR likely to require minimum occupation threshold, eg 30, 45 or even 121 days
•
Payment on account alternative to withholding tax – would not disturb normal conveyancing process
•
Exemption for disposals of property fund interests confirmed
•
New charges to take precedence over existing anti-avoidance rules
•
Definition of residential property – may exclude purpose built student lets?
•
Proposal to withdraw ATED-related CGT
•
Much discussion on rebasing to April 2015: valuation or time-apportionment?
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Tackling offshore tax evasion: strengthening civil deterrents
• Offshore Penalty regime ramps up standard UK tax penalties according to transparency of jurisdiction: Category 1 up to 100% Category 2 up to 150% of tax Category 3 up to 200%
(same as UK domestic penalties) (includes Gibraltar and Jersey)
• Reasonable excuse/ reasonable care defence and right of appeal • At present only applies to income tax and CGT on income/capital gains arising outside the UK • Proposal to extend to: Inheritance tax (“IHT”) UK undeclared income/ gains “hidden” offshore © 2014 KPMG Advisory Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative “KPMG International”, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted.
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Tackling offshore tax evasion: strengthening civil deterrents (continued)
•
2/3 of LDF disclosures involved IHT
•
IHT rules provide for tax-geared penalties where IHT returns late/ inaccurate
•
Where no return filed maximum penalty £3,200
•
HMRC concerned at scope to evade IHT through offshore non-compliance
•
Propose to calculate offshore penalties for IHT in same way as for IT/ CGT based on location of assets
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Tackling offshore tax evasion: strengthening civil deterrents (continued)
•
Taxpayers who move undeclared UK income offshore not subject to offshore penalty regime in respect of the tax evaded
•
HMRC also concerned that income/ gains can be moved from a Category 1 to Category 2 or 3 jurisdiction without incurring offshore penalty charges
•
Can be difficult to establish link between non-compliance and funds offshore: HMRC propose statutory presumption that funds = proceeds of compliance
•
How should penalty be levied where funds transferred through a succession of jurisdictions?
•
Possible new offshore surcharge to complement offshore penalties regime?
•
Proposed new category “0” in offshore penalty regime to reflect higher standards of transparency under CRS
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Tackling offshore tax evasion: a new criminal offence •
Government proposing to introduce strict liability offence of “failing to declare taxable income and gains arising offshore”
•
Restricted initially to income/ capital gains – IHT kept under review
•
Will not (initially) extend to merely diverting non-declared UK income etc offshore
•
Likely to extend to all offshore income etc; not just savings/ investment income
•
Income/ gains arising in CRS jurisdictions to be exempt
•
Possible de minimis threshold statutory or discretionary? based on £ lost tax, £ hidden capital or what?
•
Criminal sanctions should be no less harsh than available civil sanctions – maximum twice potential lost revenue?
•
Government proposes up to 6 months’ imprisonment in appropriate cases
•
Statutory defences – taking reasonable care/ following professional advice?
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Global exchange of information
David Parsons
Agenda
•
Gibraltar IGAs
•
OECD Common Reporting Standard
•
Practical issues
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Exchange of information: On request vs Automatic
•
Exchange of information on request: - TIEAs - Convention on Mutual Administrative Assistance in Tax Matters
•
Automatic exchange - Model 1 IGAs signed with US and UK (79 days in!) - OECD CRS - Revised EUSD….
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“FATCA” status
•
Live 1 July 2014
•
Many countries have signed IGAs with US
•
Registration process with IRS – “GIIN list”
•
Remember: no US interaction does not mean “I can forget US FATCA!”
•
Gibraltar (+ CDs and most OTs) also have IGAs with UK
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IGAs with US
Data as at 26 August 2014 60 51 50
40
37
30
20
8
10 5 0 Model 1 signed
Model 1 in substance
Model 2 signed
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Model 2 in substance
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GIIN list at 1 September 2014
5,000 4,496
4,500 4,000 3,500 3,000
2,973
2,862
2,500
2,240
2,000 1,500
1,156
1,000 475
500 0
BVI
Gibraltar
Guernsey
Cayman Islands:
19,216
IOM
Total:
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Jersey
Switzerland
99,861 26
FATCA/ IGA basics reminders
•
New account take on procedures for FIs: 1 July 2014
•
Registration deadlines
•
Back book reviews
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First reporting
US IGA: 30 [June?] 2015 to Gibraltar Gov’t
UK IGA: 30 [June?] 2016 to Gibraltar Gov’t
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Jurisdiction guidance
Jurisdictions that have issued “FATCA guidance” include: •
UK
•
Guernsey/ Jersey/ Isle of Man (the CDs): 28 July 2014 (version 3)
•
Cayman Islands
•
BVI
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Common Reporting Standard •
“FATCA style” auto exchange
•
44 “Early adopters”: includes UK, Spain, Gibraltar, BVI, Cayman, IOM
•
Implementation expected by 31 December 2015 (early adopters):
“new account” = opened on or after 1 January 2016
first reporting of information as at 31 December 2016
•
Information to be reported similar to FATCA
•
Entity classifications can differ Model 1 IGA vs CRS
•
No threshold exemptions for pre-existing individual accounts
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Practical issues
What if I have still done nothing ....?
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Spanish tax reform update
Alejandra Sanchez
Contents
Spanish Tax Reform • Personal Income Tax • Corporate Income Tax • Value Added Tax
• Non-Resident Income Tax Inheritance Tax – EU Courts New DTAs in force in 2014
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Spanish Tax Reform
• On 23 June, the Spanish Government published the Draft Bills for the amendment of the: Personal Income Tax, Non-resident Income Tax, Corporate Income Tax, VAT/Excise Taxes and General Taxation Laws. • The proposed laws constitute a far-reaching reform of the Spanish tax system in the framework of the economic reforms being undertaken by the current Government.
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Spanish Tax Reform – Personal Income Tax
Work income and income from economic activities:
• Exemption of severance pay: a new exemption limit of Euros 180,000/year is established. • Elimination of the exemption for awards of shares to employees. • Reduction of earned income obtained over more than two years, or on an irregular basis. The existing 40% exemption is reduced to 30%, while the annual Euros 300,000 limit and the limit for severance exceeding Euros 1,000,000 are maintained. Pension plans and similar: • Reduction of the financial limit on contributions to pensions plans to Euros 8,000 (previously 10,000/12,500), while the second tax limit of 30% of earned or income from economic activities remains unchanged. • Reductions for contributions on behalf of spouses with low income (earned income or income from economic activities up to Euros 8,000). The current limit is increased from Euros 2,000 to Euros 2,500. • Reduction of the private nursing care insurance exemption from Euros 10,000 to Euros 8,000.
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Spanish Tax Reform – Personal Income Tax
"Impatriate" tax regime (for workers seconded to Spanish territory): • The requirement for the work to be carried out in Spain is eliminated. • This regime may be applied by directors of entities, where the director does not own a holding in or is not deemed related to such entity. • Professional sportspersons are excluded from the regime. • It may be applied to income exceeding Euros 600,000, although such income will be taxed at 45%. • The applicable rates are adapted to the new non-resident income tax rates and the savings income scale.
• A transitional regime is envisaged for workers seconded before 1 January 2015. • The income tax formulae are defined in greater detail.
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Spanish Tax Reform – Personal Income Tax
“Tax amnesty” for foreign pensions
• 6-month period (Jan-June 2015 ?) • Supplementary tax returns • NO penalties • NO surcharges • NO late payment interest • Any surcharge, penalty or late payment interest PRIOR to this Tax Amnesty are cancelled and must be REFUNDED
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Spanish Tax Reform – Personal Income Tax
New withholding percentages are established for
• earned income (according to rates), • directors (37% in 2015 and 35% in 2016, or 19% in the case of companies with a turnover of less than Euros 100,000),
• and professionals (20% in 2015 and 19% in 2016 or 15% for income of less than Euros 12,000.
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Spanish Tax Reform – Personal Income Tax
Savings income and financial taxation
• The Euros 1,500/year dividend exemption is eliminated. • Capital gains and losses on the transfer of assets will be included in the savings component of taxable income in all cases, regardless of the period over which they were generated. • The transitional regime for capital gains on assets not used for economic activities acquired prior to 31 December 1994 and transferred after 31 December 1996 is eliminated.
• Offset of investment income against capital gains and losses in the savings component of taxable income: Introduction of the possibility of offsetting up to 25% of the positive balance applicable by 2018 Transitional regime: 10% in 2015, 15% in 2016 and 20% in 2017. • New withholding percentages for investment income and capital gains: 20% in 2015 and 19% in 2016. • Exemption on capital gains for taxpayers older than 65 years if the amount is invested in a life annuity contract.
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Spanish Tax Reform – Personal Income Tax
EXIT TAX • New case of taxation due to the classification of gains on shares or holdings (including in collective investment undertakings) as capital gains, where a taxpayer loses his/her tax residence in Spain and provided that the value of the holding exceeds Euros 4,000,000 or Euros 1,000,000 if the holding accounts for more than 25%. • Special measures are included for temporary secondments (up to five years) for employment purposes, and secondments within the European Union or EEE, to allow for the recovery of amounts paid. • Applicable if the taxpayer has been Spanish resident for at least 10 of the last 15 years prior to the change of residency.
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Spanish Tax Reform – Personal Income Tax
Tax on real estate
• Dation of main residence in payment of a mortgage, or in judicial or notarial foreclosure proceedings: Exemption of capital gain, subject to the non-existence of other assets or rights. • Reductions for residential leases: A single reduction of 50% is established to replace the current 60% and 100% reductions.
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Spanish Tax Reform – Personal Income Tax
Personal and family allowances and tax rates • New tax scales applicable to the general component of taxable income, and reduction of the number of tranches and rates. Special transitional scales are envisaged for 2015. • The 2016 scale sets the minimum rate at 19% for income of up to Euros 12,450 (20% in 2015) and the maximum rate at 45% for income exceeding Euros 60,000 (47% in 2015), although the ultimate rate will depend on the relevant autonomous region scale. • New scale applicable to savings income, which includes three tranches and minimal progressiveness. • The savings component of net taxable income will therefore be taxed according to the following scale: Tax base
2015 rate
2016 rate
Up to 6,000
20%
19%
6,000 to 50,000
22%
21%
50,000 or more
24%
23%
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Spanish Tax Reform – Corporate Income Tax
New Law • The Draft Bill includes a completely revised text for the Corporate Income Tax Law, which is scheduled to enter into force for tax years commencing as of 1 January 2015. Changes affecting the tax base • Impairment losses on property, plant and equipment, investment property, intangible assets including goodwill and debt securities are non-deductible. A special rule has been included for the reversal of impairment losses deductible prior to 1 January 2015. Other deductible expenses: • The tax deduction of expenses incurred for customer or supplier entertainment is restricted to 1% of the revenues for the year, subject to justification of the amount applied. • The deductibility of expenses with respect to related-parties that, because of their different classification for tax purposes, do not generate income, generate exempt income or are taxed at a rate of less than 10% (hybrid transactions) is ruled out.
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Spanish Tax Reform – Corporate Income Tax
Exemption for the avoidance of double taxation One of the most noteworthy changes introduced by the Draft Bill is the unification of the treatment of dividends and capital gains on holdings in resident and non-resident entities. The general terms of the exemption regime applicable until now to income from foreign holdings is thus extended to income from holdings in resident entities. To apply for the exemption, the holding must be at least 5% or, alternatively be valued at over Euros 50 million, and the investee must have been taxed at a nominal rate of at least 10% under a tax identical or analogous to Spanish corporate income tax. The Draft Bill also provides for a transitional regime for dividends corresponding to the acquisition of shares in resident entities prior to 1 January 2015, and another regime for shares acquired in 2015 or 2016. As regards income obtained by permanent establishments located abroad, the rule according to which the losses of the permanent establishment are not included in the tax base until it is transferred or discontinues its activities remains unaffected. The Draft Bill also expressly regulates the possibility of operating in a single country via different permanent establishments, in which case the exemption or deduction regime will apply to each of the permanent establishments individually.
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Spanish Tax Reform – Corporate Income Tax
Capitalisation reserve: There is a new tax benefit for entities subject to the general or 30% tax rate, according to which they may reduce their tax base by 10% of the increase in their equity over the year, provided that such increase is maintained for 5 years and a restricted reserve is created for the amount of the reduction (except in the case of accounting losses). The reduction may not exceed 10% of the positive preliminary tax base, and any excess may be applied in the two years immediately following the year in which the increase is generated. Tax losses: An offset limit of 60% of the preliminary tax base will apply, although this does not apply to the first Euros 1 million or in the first three tax periods in the case of newly-created companies. The deadline for offset is also eliminated so that losses may be offset indefinitely. The limit applicable to large companies to date will continue to apply temporarily in 2015.
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Spanish Tax Reform – Corporate Income Tax
As regards tax rates:
• The general rate is reduced from 30% to 28% in 2015 and 25% in 2016. • The 15% rate applicable to newly created companies engaging in economic activities is maintained for the first two years in which they have a positive tax base. This rate does NOT apply to: entities forming part of a business group or entities engaged in asset management, or in cases where the activity was carried out formerly by related persons or entities or in the previous year by an individual shareholder with a holding exceeding 50%.
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Spanish Tax Reform – Corporate Income Tax As regards special regimes, the new regulation of international tax transparency is particularly noteworthy • Method based on the attribution of income obtained by non-resident entities in the tax base, subject to the current requirements of a minimum holding of 50% and taxation at less than 75% of the tax payable under Spanish CIT. The aforesaid attribution is restricted to certain "investment income", which is defined in the Draft Bill in a list that includes a number of new types of income: insurance, intangibles, technical assistance, moveable property or derivatives, and qualifies some of the types existing to date. • The main development is the requirement for the full amount of income to be imputed where the nonresident entity does not have the pertinent organisation of material and human resources, even at group level, unless it can demonstrate that the entity was incorporated and operates for valid economic reasons.
• The exception in the case of non-resident entities that are resident in another EU Member State is maintained, provided that it can be demonstrated that the entity in question was incorporated and operates for valid economic reasons, although a new requirement is introduced whereby it must carry out economic activities. © 2014 KPMG Advisory Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative “KPMG International”, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted.
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Spanish Tax Reform – Corporate Income Tax
Related-party transactions: • For relatedness to be defined in terms of a shareholder-company relationship the holding of the former must amount to 25% of the company’s equity, rather than 5% as was the case until now (1% in the case of listed companies). • The valuation method hierarchy is eliminated and new valuation possibilities are included. • The documentation requirements for entities or groups with revenues of less than Euros 45 million are simplified, subject to regulatory development. • The Draft Bill expressly includes the requirement to document transfers of businesses and transactions involving real estate or intangible assets where the consideration in each case exceeds Euros 250,000. • Advance Pricing Arrangements: the effects of these arrangements may be extended retroactively to non-statutebarred years. • The penalty regime is amended to make it less onerous. • Non-application of the “secondary adjustment” is envisaged in the event of refund of assets and liabilities between entities.
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Spanish Tax Reform – Corporate Income Tax
Consolidated tax regime
• Applicable to horizontal groups where the holding company is non-resident.
Case of 2 Spanish Companies the ultimate holding Company of which is not resident in Spain.
Limits: Where the holding company is subject to and not exempt from a tax similar to the Spanish corporate income tax and is not resident in a tax haven.
Definition of business activity Definition of asset holding company Withholding rates: • 20% in 2015 and • 19% in 2016.
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Spanish Tax Reform – Value-Added Tax
Real estate:
• Transfers of shares that confer ownership or use of, or rights of use with respect to, real estate are considered transfers of goods. New B2C rules:
• On 1 January 2015, new VAT place-of-supply rules will come into effect for business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (‘digital services’). • The current VAT place-of-supply rules for business to business (B2B) supplies remain unaffected.
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Spanish Tax Reform – Non-Resident Income Tax
The proposed amendments to non-resident income tax are designed to bring the current regulations on this tax into line with the EU framework, to adapt it to the proposed changes in personal income tax and to increase legal certainty. Parent-Subsidiary Directive: • A specific exception to the escape clause (majority of the voting rights of a parent outside the European Union) is envisaged whereby the parent must be incorporated and operate for valid economic reasons and substantive business reasons. Exemption of royalties paid to associated entities in the European Union: • The exemption is restricted when the majority of voting rights are held by non-EU residents, but reinstated when the parent is incorporated and operates for valid economic reasons and substantive business reasons. PE taxation • Certain measures are included relating to the deduction of estimated expenses for the attribution of profits to permanent establishments, applicable under double taxation conventions executed by Spain that include the 2010 version of article 7 of the OECD Model Convention: Internal transactions carried out by the PE with its head office or other PEs located abroad are taxable in Spain and subject to the obligation for the PE in Spain to withhold such income.
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Spanish Tax Reform – Non-Resident Income Tax
The exemption for individual recipients of dividends of up to Euros 1,500 is eliminated. New non-resident income tax rates for permanent establishments: • 28% in 2015 and 25% in 2016, rather than the current rate of 30%. EXIT TAX • The Draft Bill provides for the case of PIT taxpayers who were taxed upon losing Spanish tax resident status, and the transfer value of the assets - if a gain is generated that is taxable for NRIT purposes - is therefore the market value of the securities as considered for "exit tax" purposes. Taxpayers resident in another EU Member State with no permanent establishment in Spain: • Deductible expenses are those set forth in the PIT Law in the case of individuals and, as a new feature, those set forth in the CIT Law in the case of companies.
Taxpayers resident in a Member State of the European Economic Area with which an effective exchange of tax information arrangement exists: • Assimilation of rules for the determination of capital gains applicable to residents in another EU Member State that do not operate through a PE in Spain.
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Spanish Tax Reform – Non-Resident Income Tax
Tax rates: • Application of a general rate of 24% for non-residents without a PE, and a rate of 19% in 2016 (20% in 2015) for residents of the EU or an EEA Member State with which there is an effective exchange of tax information. • Tax rate for dividends, interest and capital gains: 20% in 2015 and 19% in 2016. • Distribution abroad of the income of permanent establishments: Supplementary tax at a rate of 20% in 2015 and 19% in 2016. • Taxation at a rate of 19% is envisaged for transfers of subscription rights when the transferor is an individual. • The rate applicable to pass-through entities incorporated abroad that pursue economic activities in Spain is reduced from 35% to 25%. Main residence: • In order to encourage the free circulation of citizens throughout the European Union, non-resident taxpayers are exempt from tax on capital gains obtained on the transfer of what was their main residence in Spain, provided that the amount obtained on the transfer is reinvested in the acquisition of a new main residence.
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Inheritance and Gift Tax – Judgment of the Court of Justice of the EU
• In its judgment of 3 September 2014, the Court of Justice of the EU ruled that the Spanish Inheritance and Gift Tax Law is in breach of the European legislation guaranteeing free movement of capital, as it permits different tax treatment in the cases of non-residents and properties located abroad. • Law 22/2009 of 18 December 2009, on the financing of the Autonomous Regions subject to the regime generally applicable in Spain, permits the Autonomous Regions to establish tax benefits for persons and properties located within the territory thereof, provided that the taxpayers are Spanish tax residents. However, in the case of the inheritance and gift tax these benefits do not apply where nonresidents or donations of properties located outside Spain are concerned.
• Specifically, the Court ruled in its judgment that discrimination exists in three cases: i) mortis causa transmissions for no consideration involving non-residents; ii) inter vivos transfers for no consideration involving non-residents; iii) inter vivos transfers for no consideration of property located outside Spain.
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Inheritance and Gift Tax – Judgment of the Court of Justice of the EU
• On this basis, affected taxpayers have two ways to claim a refund of the amounts already paid under this Law, now declared contrary to EC law. • On the one hand, where no more than four years have elapsed since the amounts were paid, they may request rectification of the relevant inheritance and gift tax self-assessment, with the corresponding refund of amounts paid unduly (articles 129.3 and 221 of General Taxation Law 58/2003 of 17 December 2003). • They may also bring a claim for damages against the State/lawmaker, per article 142 of Public Authorities and Common Administrative Procedure Law 30/1992, of 26 December 1992. Such a claim must be filed within one year of publication of the CJEU judgment in the Official Journal of the EU. • We would welcome the opportunity to assess the effects of the CJEU judgment in your specific case and discuss any other related matters with you.
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Recent Double Taxation Agreements
New DTAs entering into force in 2014:
• Argentina 14/01/2014 • Cyprus: 26/05/2014 • UK: 15/05/2014 • Dominican Republic: 02/07/2014
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Gibraltar tax update Darren Anton
Gibraltar Tax Update: Fisher & Others v Revenue & Customs: background •
Before internet betting there was “telebetting”.
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The Fisher family, of which the appellants are each members, built up a successful and wellknown bookmaking business under the Stan James brand over a number of years.
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Over the course of 1999/2000, a number of bookmakers based in the UK who also offered telebetting, including Stan James, moved their operations to Gibraltar.
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At the time the betting duty regime was considerably more favourable in Gibraltar than in the UK.
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Assessments raised by HMRC in relation to the application of the UK tax anti-avoidance code in the “transfer of assets abroad” legislation (s739 ICTA 1988) to the transfer of the telebetting business to Stan James Gibraltar Limited and the income which subsequently arose to that company.
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Appeals to UK First-tier Tribunal (FTT) and issues considered: 1. Domestic law issues on the interpretation of the anti-avoidance provisions and its application to the facts 2. European law issues, and 3. the validity of the tax assessments for the particular years.
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Gibraltar Tax Update: Fisher & Others v Revenue & Customs: UK domestic law
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The interpretation of the UK transfer of assets abroad anti-avoidance legislation and how it applies to the facts: 1. Does there have to have been actual avoidance of income tax before it is invoked 2. Whether it is possible to apply to situations where there are multiple shareholders of the transferor company 3. Whether it is possible to apply to the context of the income of a trading company whose business evolves into areas distinct from the business which was transferred 4. Whether the “motive defence” applies because there was no tax avoidance
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FTT did not agree that any of the domestic law issues raised stood in the way of the antiavoidance charge applying and the defence to the tax charge did not apply as the purpose of the transfer was the avoidance of UK betting duty.
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Some HMRC assessments dismissed as defective.
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Gibraltar Tax Update: Fisher & Others v Revenue & Customs: EU Law Issues
• Whether Treaty of Rome (TECC) rights of freedom of establishment and free movement of capital (“Freedoms”) are engaged and if so whether the UK’s transfer of assets abroad legislation must be read in conformity with the European law rights or disapplied. • Sub-issue: how, if it at all, the freedoms apply to transfers between the UK and Gibraltar given Gibraltar’s particular status under the Treaty as a territory for whose external relations a Member State (the UK) is responsible for rather than as a MS?
• GOG applied to be party to the proceedings (solely in relation to the above) but was refused, although GOG was allowed to send in written submissions. • The appellants argued that this issue, if it becomes necessary to decide it, should be referred to the Court of Justice of the European Communities (CJEU) and GOG made clear that the issue is of great importance to Gibraltar. • The possibility that a decision could be reached without a reference and the likelihood of an appeal and reference at a later stage outweighed this. • FTT declined to make a reference to the CJEU.
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Gibraltar Tax Update: Fisher & Others v Revenue & Customs: EU Law Issues • The appeals by Anne Fisher for each of the years under appeal were allowed: as an Irish national meant she did have European law rights to establish and to move capital.
• The UK anti-avoidance legislation which applied at the relevant time operated to restrict her rights, without justification, and was not proportionate. • The scope of the motive defence to the charge was widened, which meant it was able to be applied in relation to assessing the purpose for which the transfer took place in respect of Anne Fisher. • Applying a conforming approach to construe tax avoidance in more narrow sense if Freedoms infringed – no purpose of avoiding betting duty through artificial means and so the reinterpreted motive defence succeeds. • If this was the wrong view then the legislation would be disapplied. • That meant while Anne Fisher benefited from the conforming interpretation, unless Stephen Fisher and Peter Fisher could show that their position is within the scope of the Freedoms they cannot benefit. Therefore relevant to consider the Gibraltar question – do Freedoms apply? © 2014 KPMG Advisory Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative “KPMG International”, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted.
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Gibraltar Tax Update: Fishers & Others v Revenue and Customs: Gibraltar Question • The position of the appellants (Fishers) and GOG with which HMRC disagreed is that the Freedoms do apply by virtue of Article 299(4) EC (now Article 355(3)TFEU).
The provisions of this Treaty shall apply to the European Territories for whose external relations a MS is responsible. • There was no issue that Gibraltar falls within this Article. • It was also stated that it is clear from the case law that the fundamental freedoms (except the free movement of goods) apply as between Gibraltar and MS other than the UK.
• No direct authority on the position as between the UK and Gibraltar and cases referred did not point towards a particular conclusion on the issue. • GOG also raised a number of matters but FTT did not consider them to take the relevant matter further eg:
the complete contradiction to what the UK Government had argued in other proceedings someone would be in a worse position if they went to Gibraltar in terms of their rights than if they went to eg Jersey © 2014 KPMG Advisory Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative “KPMG International”, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted.
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Gibraltar Tax Update: Fishers & Others v Revenue and Customs: The Gibraltar Question
• So FTT went back to the legislation. • FTT thought the better view is that Freedoms do not apply as between the UK and Gibraltar given the particular treatment of Gibraltar under the relevant European legislation. • Nothing to suggest from wording of Freedoms when read purposively in conjunction with Article 229(4) that they would create rights between the MS and the external territory for whose relations the MS is responsible.
• The situation was one which was to be regarded as wholly internal to the MS (the UK). • Rights left to MS and territory to determine.
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Gibraltar Tax Update: Fishers & Others v Revenue and Customs: the Gibraltar Question Contd.
Reasons for FTT view: • Drafting of Article 299(4) – reference to MS is singular and the territory does not feature in the Treaty. • Suggests that there is a special status/relationship between MS and the territory for which it is responsible for the external relations.
• When one entity is responsible for another’s external relationships - the relationship between the two entities will be something other than one of external relations. • Article 355 states what comprises the territory of the MS and does not impose new rights. • Proceedings are taken against the MS (the UK) and not Gibraltar for infringements of EU law and legal basis for sanctions by CJEU refers only to MS. • If rights were intended between the external territory and its associated MS, then if it was the territory which breached rights then it would be expected that the sanction would be against the territory.
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Gibraltar Tax Update: QNUPS •
New Section 14B in the Income Tax Act 2010 relating to pensions in connection with a “statutory instrument”.
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Statutory instrument means the SI in force in the UK in relation to the Qualifying Non-UK Pension Scheme (QNUPS) – Section 271A IHTA 1984.
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A QNUPS is a pension scheme established in a country outside the UK and that is not a registered UK pension scheme but meets the requirements of UK IHT (QNUPS) Regs 2010.
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QNUPS are currently outside the scope of UK IHT.
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Must be approved by the Gibraltar Commissioner of Income Tax and open to both Gibraltar residents and non-residents.
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May commute (take lump sum) up to 30% of value of the fund.
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No benefit entitlement under 55 unless retire on the grounds of ill health.
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Pension income taxed at a rate of 2.5%.
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Any questions?
Presenters’ contact details Gregory Jones Tax Director +44 (0) 1624 681000 gregjones@kpmg.gi
David Parsons Associate Tax Director +44 (0) 1624 681004 davidparsons@kpmg.co.im
Alejandra Sanchez Senior Tax Manager +34 952 611460 aasanchez@kpmg.es
Darren Anton Senior Tax Manager +350 200 48600 darrenanton@kpmg.gi
KPMG Advisory Limited 3B Leisure Island Business Centre Ocean Village Gibraltar
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.