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UK: Proposals concerning taxation of offshore intangible receipts

UK: Proposals, taxation of offshore intangible receipts

Proposed amendments to the recently enacted rules on the taxation of offshore receipts in respect of intangible property have now been released in draft format along with draft guidance, for consultation.

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Certain of the proposed changes (such as a new “specified territory” exemption and a new look-through rule for resellers) are the result of consultation earlier this year. These amendments, once made, would be effective retroactively to the date of commencement of the rules. Other amendments would 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 offshore receipts in respect of intangible property rules impose income tax at 20% on gross amounts arising from 6 April 2019 to certain non-residents from the enjoyment or exercise of intangible property rights when 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 address 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Draft guidance has also been published by HM Revenue & Customs for comment.

What are the changes?

The changes fall into two categories.

  • Relieving or clarifying changes, which would have retroactive effect from 6 April 2019:
    • A new, as yet unpublished, “white list” territory exemption would be introduced. This is expected to include certain typically high tax jurisdictions with which the UK has no tax treaty.
    • Resellers would 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 would 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 would be made for amounts derived from third-party UK sales when the intangible property in question makes an insignificant contribution to the sale. This would reduce some of the burden companies will face in tracing the end-destination of their products or services.
    • A new exemption would be introduced to provide two companies in a group cannot be subject to double offshore receipts in respect of intangible property charge on the same amount.
  • Other changes that would only apply to amounts arising after the amendments are made include:
    • When 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 would remain within the scope of the offshore receipts in respect of intangible property charge.
    • Entities that are resident in a full treaty territory but only liable to tax there on a source or remittance basis would remain within the scope of the offshore receipts in respect of intangible property charge (but treaty relief may still be available).
    • An exemption from the rules for certain fully taxed, full treaty resident, opaque partnerships would apply.

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 19 July 2019.


Read a May 2019 report prepared by the KPMG member firm in the UK

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