1. UK/EU Developments
February 2019

2. Multi Lateral Instrument

3. 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

4. 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

5. Diverted Profits Tax

6. 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:

7. 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’)

8. 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

9. Digital Services Tax

10. 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 […]

11. 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

12. 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