Promised amendments to the recently enacted rules on the taxation of offshore intangible receipts released in draft, with draft guidance.
The promised amendments to the recently enacted rules on the taxation of offshore receipts in respect of intangible property (ORIP) have now been released in draft, alongside draft guidance, for consultation. Certain of the amendments, such as a new ‘specified territory’ exemption and a new look-through rule for resellers, are the result of consultation earlier this year and are relieving in nature. These amendments, once made, will take effect retrospectively to the commencement of the rules. Other amendments broaden the scope of the rules, for example by raising the threshold to achieve exemption through residence in a full treaty territory, and will only apply to amounts arising after the amendments are made.
What are the rules and why are they changing?
The ORIP rules impose income tax at 20 percent on gross amounts arising from 6 April 2019 to certain non-residents from the enjoyment or exercise of intangible property rights where this directly or indirectly enables, facilitates or promotes UK sales. The rules apply to groups that generate UK-derived intangible returns through entities resident in jurisdictions without a full UK tax treaty.
At the time the rules were enacted, a provision was included to allow regulations to be made subsequently to deal with deficiencies or unintended consequences. These regulations have now been published in draft for comment and will be formalised in Autumn 2019.
Draft guidance has also been published by HMRC for comment.
What are the changes?
The changes fall into two categories.
No material changes are proposed to the existing exemptions for high taxed companies, ‘home grown’ substance and groups that make UK sales below £10 million.
What happens next?
A consultation period will run until 11:45pm on 19 July 2019. Whilst a number of the changes remove certain unintended consequences, they are generally narrow in scope. Groups are therefore advised to review their positions carefully to determine how the rules apply to them and to participate in the consultation where unexpected consequences are identified.
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