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Autumn Budget 2018: Offshore receipts in respect of intangible property

Offshore receipts in respect of intangible property

The Chancellor confirmed the UK will introduce an expanded set of taxing rights in relation to intangible property connected with UK sales.

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Following the 2017 consultation on introducing an expanded royalty withholding tax, the Government has announced the introduction of a measure that directly taxes certain offshore entities holding intangible property in low tax jurisdictions where income arises in relation to that intangible property directly or indirectly from the sale of goods or services in the UK.

The measure will apply regardless of whether there is a UK taxable presence, and will apply to gross income received (including embedded royalties and income from the indirect exploitation of intangible property) with effect from 6 April 2019.

The measure will apply in both connected and unconnected party scenarios, but will only apply where the ultimate recipient is in a low tax jurisdiction.

Low tax jurisdictions for these purposes are regarded as being those jurisdictions with which the UK does not have a double tax agreement that contains a non- discrimination provision. Any person within the same control group during the relevant tax year will be jointly and severally liable for the new tax.

In order to ensure the measure is appropriately targeted, the Government will also legislate the following exemptions:

  • A de minimis UK sales threshold of £10 million;
  • An exemption for partnerships which are regarded as separate entities for tax purposes and resident in full treaty territories;
  • An exemption for income that is taxed at an effective rate of at least 50 percent of the rate that would otherwise arise under this measure; and
  • An exemption for income relating to intangible property that is supported by sufficient local substance and which has not been acquired from related parties.

Multinationals should also be mindful of the targeted anti-avoidance rule introduced by this measure, with effect from 29 October 2018. This targeted anti-avoidance rule will counteract arrangements that are entered into with a main purpose of avoiding a charge under this new measure.

Contact

Matthew Herrington

+44 (0) 20 76944 348

matthew.herrington@kpmg.co.uk

Karen Kwan

+44 (0) 20 76943 783

karen.kwan@kpmg.co.uk

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