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UK: Regulations amend rules on offshore receipts from intangible property

UK: Regulations amend rules on offshore receipts

Regulations amending the rules concerning offshore receipts from intangible property were finalised on 4 November 2019, prior to the dissolution of Parliament.

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The “offshore receipts from intangible property” (ORIP) rules were introduced by Finance Act 2019, effective from 6 April 2019. The regulations introduced on 4 November 2019 provided a number of amendments to the ORIP rules so that the regime works as intended. Most of the provisions are retroactively effective from 6 April 2019, but there are some changes which take effect from 5 November 2019.


ORIP rules

The ORIP rules provide for a direct UK income tax charge (currently at 20%) 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), when those amounts relate to the sale of goods or services in the UK.

The ORIP rules generally apply to persons located in jurisdictions with whom the UK does not have a full income tax treaty, but also extend to situations when a person is located in a treaty territory but because of certain provisions of the treaty, they are not covered by the treaty.

The ORIP rules broadly try to catch a diverse and complex range of arrangements and therefore require careful consideration.


Regulations

At the time the ORIP rules were enacted, a provision was included to allow for future regulations to address deficiencies or unintended consequences.

  • These regulations were published in draft format and then were subject to consultation from 24 May to 19 July 2019.
  • This was followed by final regulations on 14 October 2019 and approval 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 2019, 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 that are treated as transparent for tax purposes in that territory, but are 100% owned by residents in that territory. This is intended that a transparent U.S. LLC that is wholly owned by U.S. 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 (that may disappoint businesses that 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 when 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 when relevant.

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

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