The Bill covers indirect tax changes to comply with the Northern Ireland Protocol and provides for HMRC to recover State aid regarding CFCs.
In preparation for the end of the Brexit transition period on 31 December 2020, the Government has put the Taxation (Post-transition Period) Bill before Parliament. As expected, the Bill makes provision in respect of changes required to customs, VAT and excise law in order to comply with the provisions of the Northern Ireland Protocol and sets out a new model for the VAT treatment on goods arriving into the UK. We will cover this in more detail in the next edition of Tax Matters Digest. The Bill also includes provisions to give HMRC power to recover State aid in relation to the financing exemption for controlled foreign companies (CFCs) which was previously found to be unlawful by the European Commission. This is discussed further in this article.
Controlled Foreign Company State aid
On 2 April 2019, the European Commission (EC) confirmed its view that the 75 percent and 100 percent UK CFC Group Financing Exemptions (Finco Exemptions) breach EU State aid rules. The decision by the EC means that the UK Government is required to take steps to recover the alleged State aid from the recipients. Our earlier article in Tax Matters Digest on 20 December 2019 outlined the approach HMRC had originally planned to take to achieve this.
The Bill changes the methods used for the recovery of CFC State aid, by introducing a statutory mechanism allowing HMRC to raise additional CFC charges by issuing a charging notice (without the usual taxpayer protections provided by discovery assessment). The additional amounts included in the charging notice will need to be paid within 30 days and although taxpayers will have the right to appeal a charging notice, it will not be possible to postpone payment. Where a charging notice is issued, any discovery assessment in respect of the additional amounts will no longer have effect and therefore any corresponding appeal of such assessments, will also not proceed.
The charging notice can be varied by HMRC to take into account additional information, for example reliefs available. An interest charging notice may be issued in respect of additional amounts included in a charging notice calculated in accordance with EU regulations at a compound rate. There is an initial 12 month period in which the notices will be issued, with many expected to be issued in January 2021. There is also a short window of 60 days after the issue of the charging notice in which a taxpayer needs to claim any additional reliefs specified in the legislation.
As well as the VAT and customs legislation there are also provisions in respect of insurance premium tax where an insurer fails to pay the tax and to increase the Aviation Gasoline rate by 0.5p per litre to £0.3820 per litre, from 1 January 2021.
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