UK/EU Developments February 2019

Multi Lateral Instrument

EU Member State choices Update dependent agent permanent establishments: ‘habitually plays the principal role...’ Croatia France Lithuania Netherlands Slovak Republic Slovenia Spain Romania Updating the exemption for specific activity creating a fixed place of business permanent establishment (preparatory or auxiliary) Option A Makes all of the specific activity exemptions contingent on the activity being of a preparatory or auxiliary character Austria Croatia Germany Italy Netherlands Romania Slovak Republic Slovenia Spain Option B Makes some of the specific activity exemptions contingent on the activity being of a preparatory or auxiliary character Belgium France Ireland Lithuania Luxembourg

EU Member State choices (continued) Anti-fragmentation rule Belgium Croatia France Ireland Italy Lithuania Netherlands Portugal Romania Spain Slovak Republic Slovenia United Kingdom* France Ireland Lithuania Netherlands Slovak Republic Splitting-up of construction contracts * Also changing UK domestic law

Diverted Profits Tax

Scope UK company, or UK permanent establishment, has transacted with a low taxed entity that lacks economic substance. Foreign company has artificially avoided having a taxable presence in the UK; An anti avoidance measure that applies in two distinct situations: Requirement for activity (people) in the UK. Small or medium sized enterprises Situations where tax mismatch only arises due to loan relationships. Exclusions:

Artificial avoidance of a UK PE Overview A person (can be UK resident or not) is carrying on activity in the UK in connection with they supplies of goods, services or other property by the foreign company It is ‘reasonable to assume’ that the UK activity is ‘designed’ so that there is no UK PE of the foreign company? Tax avoidance condition is met Mismatch condition is met And / Or There is a company carrying on a trade which is not resident in the UK (‘the foreign company’)

Example Royalty Service fee UK Customers Summary situation Low Tax Summary situation Principal makes sales direct to UK customers UK Co provides sales support services to Principal but activities do not create a PE of Principal Principal pays a royalty to Low Tax for use of IP. Can also apply to Principal companies that do not pay a royalty. DPT analysis Offshore sales principal Mismatch on payment to haven. Tax avoidance condition may be met too. Royalty Principal Service fee UK Customers UK co

Digital Services Tax

UK Digital Services Tax Timeline Autumn Budget 2018 ‘Addressing the Tax Challenges of the Digital Economy’ Autumn budget on 29 October 2018 announced the introduction of a Digital Services Tax (DST). Followed position papers in November 2017 and March 2018. Final Consultation Document Plan to introduce a Digital Services Tax (DST) from April 2020 2017 […] Next steps Deadline for comments on the consultation is 28 February 2019 2017 […]

UK Digital Services Tax Details Digital Services Tax: Consultation Paper November 2018 Approach 2% tax on the revenues in scope digital businesses Where their revenues are linked the participation of UK users What matters is the location of the user, not the business DST will be an allowable expense for UK Corporate Tax purposes It will not be creditable against UK Corporate Tax Applies to: Not in Scope: Approach UK Digital Services Tax (DST) Thresholds Definitions Financial and payment services Provision of online content Sales of software/hardware Television/broadcasting services Search engines Social media platforms Online marketplaces Calculations

UK Digital Services Tax Details Digital Services Tax: Consultation Paper November 2018 Thresholds / safe harbour Applies to businesses that generate revenue from in-scope business models of at least £500m globally on a group wide basis First £25m of relevant UK revenues are not taxable Safe harbour for those with very low profit margins or those making losses Thresholds / safe harbour UK Digital Services Tax (DST) Time Spent on This Slide: 1 minute or less 1 to 3 minutes 3 to 5 minutes 5 to 10 minutes More than 10 minutes (this would apply, for example, if showing the same slide during an activity) Materials and/or Actions: [Placeholder] Key Speaking Points: Approach Definitions Calculations