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Regulations made amending Offshore Receipts from Intangible Property rules

Regulations made amending Offshore Receipts

Regulations made amending Offshore Receipts from Intangible Property rules, finalised on 4 November, prior to the dissolution of Parliament.

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Sarah churton

Partner, International Tax

KPMG in the UK

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The Offshore Receipts from Intangible Property (ORIP) rules were introduced by Finance Act 2019 with effect from 6 April 2019. Regulations were made on 4 November which introduce a number of amendments to the legislation to ensure that the regime works as intended. Most of the provisions have retrospective effect from 6 April 2019 but there are some changes which take effect from 5 November 2019.

The ORIP regime in Chapter 2A of Part 5 of ITTOIA 2005 was introduced by Finance Act 2019. The ORIP rules provide for a direct UK income tax charge (currently at 20 percent) on gross amounts of income received by certain non-UK resident persons in respect of the enjoyment or exercise of rights in respect of intangible property (IP), where those amounts relate to the sale of goods or services in the UK.

The ORIP regime generally applies to persons located in jurisdictions with whom the UK does not have a full income tax treaty but also extends to situations where a person is located in a treaty territory but the provisions of the treaty mean they are not covered by the treaty.

The rules have been widely drawn to try and catch a diverse and complex range of arrangements and therefore require careful consideration.

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 were published in draft and subject to consultation from 24 May to 19 July 2019. Our article published on 31 May 2019 summarised the key amendments proposed, which were narrow in scope.

The final regulations were laid on 14 October 2019 and approved by Parliament on 4 November 2019 prior to Parliament being dissolved for the General Election. The majority of the changes have retrospective effect from 6 April 2019 but there are also a number of changes which take effect from 5 November 2019.

The main change to the final regulations, compared to the draft published in May, is the introduction of a new exemption for tax transparent corporate bodies formed under the laws of a full treaty territory. This means corporate bodies which are treated as transparent for tax purposes in that territory but are one hundred percent owned by residents in that territory. This should ensure that a transparent US LLC which is wholly owned by US resident members is excluded from the ORIP charge without a treaty claim being needed.

There were no changes made to the draft reseller ‘look through’ provisions which will disappoint businesses who manufacture for export in the UK and had hoped that the look through rules would be expanded to cover all intra-group transactions to better target situations where there is an ‘end customer’ that creates the UK nexus, in a similar way to the approach for online advertising. The new specified territories exemption is now in force, but regulations setting out the jurisdictions covered are still pending.

The draft technical guidance on the legislation has also been updated to include further commentary on a number of aspects of the rules – including when income ‘arises’, the application of the targeted anti-avoidance rule (TAAR) and confirmation that a treaty claim is required to override a charge under ORIP where relevant.

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