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Taxation of offshore intangible receipts – proposed amendments

Taxation of offshore intangible receipts

Promised amendments to the recently enacted rules on the taxation of offshore intangible receipts released in draft, with draft guidance.

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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the taxation of offshore receipts in respect of intangible property (ORIP) have now been released in draft, alongside draft guidance, for consultation.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Draft guidance has also been published by HMRC for comment.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.

  • Relieving or clarifying changes, which take retrospective effect from 6 April 2019:
    • A new, as yet unpublished, ‘white list’ territory exemption will be introduced. This is expected to include certain typically high tax jurisdictions with which the UK has no tax treaty; 
    • Resellers should be looked through for the purposes of determining whether a sale is made in the UK or to a UK customer; 
    • The provision of online advertising services will comprise a UK sale to the extent the advertising is targeted at persons in the UK (as opposed to being focused on the location of the purchaser of the advertising space);
    • A new exclusion is made for amounts derived from third party UK sales where the intangible property in question makes an insignificant contribution to the sale. This will reduce some of the burden companies will face in tracing the end-destination of their products or services; and
    • A new exemption is introduced to ensure that two companies in a group cannot be subject to a double ORIP charge on the same amount.
  • Other changes, which will only apply to amounts arising after the amendments are made:
    • Where an entity is resident in a full UK treaty territory but is expressly of a kind that is excluded from relief under that treaty, it will remain within the scope of the ORIP charge;
    • Entities that are resident in a full treaty territory but only liable to tax there on a source or remittance basis will remain within the scope of the ORIP charge (but treaty relief may still be available); and
    • An exemption from the rules for certain fully taxed, full treaty resident, opaque partnerships.

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.

For further information please contact:

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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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