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Autumn Budget 2017 – Multinationals overview

Autumn Budget 2017 – Multinationals overview

A business friendly Budget light on immediate changes, which nonetheless contains some points to watch for multinational business.

Melissa Geiger

Partner, Head of International Tax and Tax Policy

KPMG in the UK


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Autumn Budget 2017 - Multinationals overview - illustration of a globe

In a year which has seen the largest Finance Bill in history coupled with the starting of the Brexit clock, it is hardly surprising that going into the Autumn Budget the consistent plea from large business has been for stability and certainty. With “Spreadsheet Phil” at the despatch box – a man who has famously extolled ‘dullness’ as a political virtue – radical changes were not widely expected, and despite the Chancellor’s opening exhortation to “run towards change” the speech was reassuringly light on dramatic announcements.  Even the headline announcement of an increase in the R&D Expenditure Credit from 11 percent to 12 percent from 1 January 2018, whilst very welcome, does no more (and strictly less) than maintain the value of the relief once the planned cuts in corporation tax are taken into account. 

Post-election budgets are traditionally the time for raising taxes, giving the electorate time to forgive and forget before the need to return to the ballot box. For a minority government fighting to maintain a united front, however, the prospect of pushing controversial tax raising measures through the Parliamentary process was never going to appeal. Accordingly, despite speculation that the planned corporation tax cuts might be deferred or axed as an alternative to raising taxes, the Chancellor (all too aware of the danger of perceived departures from manifesto commitments) confirmed that these would go ahead. There was similarly limited scope to simply further accelerate tax collection, with the existing proposals to bring forward corporate tax instalment payments for “very large” groups from April 2019 only legislated for earlier this month. Revenue raising from the existing tax base is therefore for the most part restricted to some comparatively minor rule changes (e.g. restricting the indexation relief given to companies to compensate for the effect of inflation in calculating chargeable gains), with the largest source of additional revenue being the expected yield from increasing HMRC’s compliance resource.

Standing back, however, the Budget gives a few hints that bigger changes could be in the pipeline, with an emerging theme of the UK seeking to both expand and protect its tax base to capture more revenues currently taxed offshore (if at all).

For example, a proposed new withholding tax on royalty payments is predicted to raise a mere £800 million, but the underlying policy (which the Government intends to consult on) is potentially of much bigger significance. In a departure from the UK’s usual approach to territorial tax issues a liability can be triggered where the royalty relates to UK sales, without necessarily needing a UK taxable presence or UK source. Whilst the impact is limited by a focus only on payments to “low tax” jurisdictions, a clear message is being sent that the UK’s view of what profits properly fall within the scope of UK tax is changing. A position paper published alongside the proposals notes a longer term ambition to achieve a consensus for more wholescale changes in the way in which the profits of multinationals operating in the digital economy are carved up – with the expectation that this would result in a greater allocation to the UK.

Similarly, there is a significant extension of the UK tax base arising from the decision to consult on bringing non-resident companies holding UK immoveable property with the scope of UK capital gains tax from 1 April 2019 and then UK corporation tax from the following year. Whilst this arguably simply brings the UK into line with international norms, it nonetheless represents an important change in UK policy and there will inevitably be considerable focus on the impact for investment into UK commercial property and the scope of the proposed exemption for institutional investors.

This apparent attention on the scope of the UK’s tax base is entirely in keeping with international trends, manifested particularly in the OECD’s BEPS project. Ensuring that profits are taxed where value is created is an ambition that should receive widespread support, including from multinational businesses. For businesses still grappling with the UK’s implementation of the BEPS hybrid and interest restriction proposals, however, which have seen both regimes being further tweaked by the Budget and lacking finalised guidance despite being in force for almost a year, there are inevitably going to be questions about precisely how this ambition is implemented in practice. The stated intention to consult on future changes is encouraging, but taking proper account of that consultation process together with allowing the necessary time to produce clear and effective legislation which can be applied in practice is clearly going to be crucial.

As well as broadening the UK tax base the Budget also continues the trend of involving business in the fight to close the tax gap and protect the existing tax base. This can be seen particularly in the further announcements made in relation to online marketplaces. Extending proposals originally announced in 2016, the Government intends to make online marketplaces jointly and severally liable for the unpaid VAT of businesses that sell goods in the UK via the online marketplace’s website. The proposals, which effectively shift the risk of non-compliance onto the marketplace, also mean that as well as having to verify sellers’ VAT identification numbers, online market places will now need to display these to customers buying the goods. This is described as enabling consumers wishing to buy from a VAT registered business to do so with confidence, but is also acknowledged as assisting in the identification of non-compliant traders.

Looking ahead, a promised consultation on the UK’s intangible fixed asset regime should be of interest to most groups, but as yet there is little clarity on what changes might be proposed. This lack is perhaps representative of what many businesses may feel is ultimately lacking from an otherwise deliberately business-friendly Budget: a clear statement of the Government’s vision for the UK’s future tax regime. It had been hoped that the Chancellor might take this opportunity to publish a new Corporate Tax Roadmap akin to that issued in 2010, setting out intended direction of travel, but (perhaps not surprisingly in light of the broader political environment) this does not appear to be something the Government is currently willing to offer.

In summary, whilst for most multinationals this Budget represents a welcome respite after the major changes of recent years, there are still developments to watch as the Government begins to shape the UK’s future tax regime. The lack of immediate new complexity can expect a warm response from businesses looking for some short-term stability, but as the focus turns to that future tax regime the continuing lack of a clear vision (or the much looked-for roadmap) may make certainty feel as elusive as ever.


Other relevant measures: 

Increase in Research and Development credit is boost for innovation

An increase in credit means the UK Government will fund circa 10 percent of R&D expenditure

Corporate Tax and the Digital Economy: UK Government Position Paper

A position paper has been issued for taxing the digital economy.  This is likely to be a game changer, particularly for social media companies and online marketplaces.

Oil and Gas taxation – introduction of transferrable tax history 

The Chancellor has announced that companies will be able to transfer tax history on the disposal of oil fields.

Changes to corporation tax on chargeable gains 

CT on chargeable gains: Indexation allowance frozen from 1 January 2018 and depreciatory transactions time limit abolished from 22 November 2017.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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