AFM Tax Training Day 2013 Tax Training day slides... · Successions • Clause 32 ... AFM Tax Training Day 2013 June 2013 . PwC Corporation tax losses Group relief – gross profits

AFM Tax Training Day 2013 Corporation tax Update 3 June 2013

www.pwc.co.uk

PwC

Legislative update – corporation tax

Overview of new (2013) insurance company/friendly society rules R&D tax credits General anti-abuse rule Corporation tax losses

Slide 2 June 2013 AFM Tax Training Day 2013

PwC

Overview of new (2013) insurance company/friendly society rules


PwC

Overview of new (2013) insurance company/friendly society rules - highlights Legislation in Parts 2 and 3 of the Finance Act 2012 •  Rewriting of main corporation tax provisions for life assurance •  Main changes are to profits calculation •  Impacts for mutual insurers and friendly societies

-  GRB, PHI and “new” protection merge into new category Non-BLAGAB Long-Term Business (“NBLTB”)

-  Where mutual, there is no tax charge on NBLTB •  Otherwise, general scheme of I-E applies to (taxable) BLAGAB


PwC

Taxation of non-BLAGAB long-term business

Section 71 of the Finance Act 2012 (1) The charge to corporation tax on income under section 35 of CTA

2009 (charge to tax on trade profits) applies to the profits of non-BLAGAB long-term business carried on by an insurance company.

… (3) Subsection (1) does not apply if the business is mutual business, and

in that case no other provision of the Corporation Tax Acts has effect to charge the income of the business to corporation tax.

Provided therefore mutual status is clarified, no need to include any amounts for NBLTB in the computation. NBLTB expenses etc need to be excluded too. (Similar to “exempt BLAGAB” in a friendly society.)


PwC

New protection business – part of non-BLAGAB long-term business

Sections 57 and 62 of the Finance Act 2012 •  Protection business made on or after 1 January 2013 is part of

NBLTB. •  Protection business is where

-  payout other than on a death or incapacity cannot exceed premiums;

-  remote eventualities disregarded. •  New mutual protection business effectively exempt

-  but no relief for expenses (particularly acquisition expenses) •  HMRC guidance available on

http://www.hmrc.gov.uk/life-assurance/manual.htm


PwC

BLAGAB under the new rules

•  I-E is a BLAGAB-only computation -  in a mutual, NBLTB (and exempt BLAGAB) should be exempt

•  Most rules similar to “old” regime -  investment income and chargeable gains less expenses -  deemed disposals of unit trusts/OEICs and 7-year spreading -  spreading of acquisition expenses -  I-E profit is taxable at basic rate of income tax – but CT rate for

2015 will be the same


PwC

Allocation of income etc

•  Three allocations -  income, losses and expenses ◦  current year items

-  chargeable gains and allowable losses ◦  realisations only – may represent several years’ growth

-  accounting profit or loss ◦  not really relevant in a mutual

•  Only really interested in amounts allocable to BLAGAB -  income, losses, expenses, chargeable gains and allowable losses

attributable to NBLTB are disregarded


PwC

Allocation of income etc

•  Allocation methods -  must be consistent with each other -  must be an acceptable commercial method

•  Company’s (or society’s) allocation for its commercial purposes •  In simple fund structures may be similar to old rules – a mean

liability apportionment •  Discuss with HMRC •  Chargeable gains – allocation method should have regard to the

period over which the assets have been held


PwC

Proforma computation BLAGAB I-E – six step approach

1. Income Property income X

Loan relationships X

Derivatives X

Intangible assets X

Taxable distributions (company and unit trusts etc) X

Annual payments X

Miscellaneous foreign income X

Miscellaneous income X

X

2. Chargeable gains X

4. Subtotal X

Non-trading loan relationship deficits (X)

4. I X

5. Expenses (X)

6. I-E profit X


PwC

R&D “above the line” credits


PwC

R&D credits Overview – large companies

Elective scheme at present •  Schedule 14 to the Bill – Chapter 6A of Part 3 of CTA 2009 •  Alternative to existing rules in Part 13 of CTA 2009 •  But for a large company Part 13 effectively repealed from 2016 Basic scheme (Not interested here about SMEs) •  Trading (large) company incurs R&D costs •  Claim for 10% of R&D costs to be treated as taxable trading receipt •  Trading profits therefore increase •  Hang on a minute...


PwC

R&D credits Overview

Basic scheme •  But – an amount equal to the “credit” is potentially “payable” to the

company •  The amount is offset—

-  against CT for the period; -  (with restriction), against CT for another period; -  (after that restriction) against CT of a group company -  (after deduction of CT) against any other tax liability of the

company -  if all else fails, HMRC repay the balance to the company


PwC

R&D credits Simple comparison – old and new

Old rules New rules

Profitable Loss-making Profitable Loss-making

Profit before R&D adjs 1,000 (1,000) 1,000 (1,000)

Effect of £2,000 R&D (600) (600) 200 200

Tax result 400 (1,600) 1,200 (800)

Cash tax payable (20%) 80 0 240 0

R&D tax credit (200) (200)

Net (cash) tax 80 0 40 (200) or (160)

A/cs profit before tax 1,000 (1,000) 1,200 (800)

A/cs profit after tax 920 (680) 960 (640)


PwC

R&D credits Set-off amounts: the seven step plan

Step 0

What is the set-off amount?

= R&D credit

Step 1

Discharge current year corporation tax

Easy-peasy; no restriction

Step 2

Cap balance at “expenditure on workers”

Excess becomes R&D credit for next period

Step 3

Discharge same company’s other CT liabilities

Step 4

May surrender to group company

Capped at “overlap period” CT Not a profit or loss for either company

Step 5

Reduce by CT rate

Special rules for oil; Deducted amount can be surrendered or carried forward vs future CT

Step 6

Discharge any remaining liability to HMRC

HMRC’s last chance

Step 7

HMRC repay the balance!!

With restrictions

‘’’


PwC

R&D credits Carry-forward amounts

Step 2 •  Excess after Step 1 over “expenditure on workers” is treated as R&D

expenditure credit for next period for “payment” purposes; •  Deeming—

-  does not include taxing the credit in next period; -  does include “expenditure on workers” cap.

Step 5 •  CT deducted from post-step 4 residue is carried forward and offset

against company’s future CT liability; •  That CT can be surrendered to another group company.


PwC

R&D credits Proprietary life assurers

Insurance companies not SMEs (section 104U) •  Which is why I haven’t discussed SME rules •  (Friendly societies taxed as if insurance companies) Non-BLAGAB long-term business •  It’s taxed as a trade – normal rules apply BLAGAB •  It’s a trade – normal rules apply! •  No (direct) effect on I-E •  Section 93 minimum profits impact (possibly) •  (No additional CT rate effect if CTR and BRIT are equal) •  Special rule for mutuals


PwC

R&D credits Mutual life assurers

Deemed I-E receipt in BLAGAB •  Doesn’t apply to proprietary companies •  Effectively applies the basic (trading) rules mutatis mutandis to the

I-E computation •  Deems section 92 of the Finance Act 2012 to apply to the amount

-  (is this ideal formulation?) •  Everything else should apply “as normal” Non-BLAGAB long-term business •  Deafening silence


PwC

R&D credits Simple comparison – mutual and proprietary

Proprietary Mutual

XSI XSE Profitable

Adjusted BLAGAB TP (before effect of £2,000 R&D) 1,000 1,000 N/a

Initial I-E result 2,000 1,000 2,000

I-E effect of R&D (section 93/section 104V) 0 200 200

Adjusted I-E 2,000 1,200 2,200

Cash tax payable (20% - FY 2015 on) 400 240 440

R&D tax credit (200) (200) (200)

Net (cash) tax 200 40 240

Cash effect of R&D 200 160 160


PwC

General anti-abuse rule

A quick overview


PwC


Part 5 of the Finance Bill 2013-14 •  Counters tax advantages from tax arrangements which are abusive •  Tax advantage—

-  includes increasing tax reliefs, reducing charge to tax etc -  applies to income tax, corporation tax, capital gains tax (plus four

others) but not (e.g.) VAT, stamp duty, stamp duty reserve tax •  Tax arrangements – “reasonable to conclude that the obtaining of a

tax advantage was the main purpose … of the arrangements” •  Abusive

-  arrangements “cannot reasonably be regarded as a reasonable course of action” having regard to all the circumstances


PwC


Indications of abusive arrangements •  Taxable result (positive) is significantly less than economic result •  Tax deductions are significantly more than economic losses •  Tax claims for repayment or credit of tax which has not been paid. But only if not the anticipated result of the legislation GAAR Advisory Panel •  Sub-panel of 3 members consider the arrangements •  Advise on whether the arrangements is, or is not, a reasonable course

of action •  Sub-panel members may disagree and give separate opinions •  Opinion not binding – but likely to be taken into account by Court


PwC

Corporation tax losses

A small portfolio


PwC

Corporation tax losses Losses and change of ownership

Successions •  Clause 32 •  Basic rules in sections 672 to 730 of CTA 2010 (was section 768 etc) •  Substitutes section 676 •  Closes a “loophole” in the interaction between Parts 14 and 22 •  Old section 676 applies to successions before change of ownership •  New section 676 applies (separately) to successions before or after

change of ownership


PwC

Corporation tax losses Losses and change of ownership - successions

Seller Buyer

Predecessor company

Successor company

Successor company

Seller Buyer

Predecessor company

Successor company

Predecessor company

Transfer trade

Sell company

Transfer trade

Sell company

Old and new rules Apply “major change” rule as if successor’s and predecessor’s trade were the same

Old rule “Major change” rule has no application to successor (not changed ownership) New rule Apply as if trades were the same


PwC

Corporation tax losses Losses and change of ownership

Shell companies •  Clause 33 and Schedule 13 •  Extension of loss restrictions to shell companies

-  not carrying on a trade, investment business, or property business •  Restricts relief for loan relationship debits, intangibles

-  prohibition on carry-forward after change of ownership •  No “major change” test – but what could it be?


PwC

Corporation tax losses Group relief – gross profits and CFCs

The third loophole – Clause 29 •  Scenario – Company A has losses of the following types

-  charitable donations (current year) -  UK property business (current year) -  management expenses (current year) -  intangibles losses (current year) -  and shedloads of (say) brought forward stuff

•  Can’t surrender (first four) as GR unless exceed “gross profits” •  A transfers its gross profits to a CFC – no gross profits, full GR •  B/fwd stuff reliefs CFC charge (on apportionment) •  Change brings CFC apportionment into “profit-related threshold”


PwC

Finance Bill 2013-14 Other topics (include)

•  Corporation tax rates for 2014 and 2015 •  Annual tax on “enveloped dwellings” •  All sorts of oil-related excitement •  Statutory residence test for individuals (and ordinary residence) •  Pensions changes •  Lots on former Customs & Excise areas •  Controlled foreign company tweaks


Thank you

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Philip Lewis PwC 020 7213 1584 [email protected]

VAT Indirect Taxes Update

2012-13 A Review of Reviews

Retail Distribution Review Review of Funds Management

EU VAT Review IPT

John Brooks, LV=

VAT - A simple tax?

VAT Exemptions v. Input VAT Recovery Introduced 1st April 1973 Exemptions appear to benefit product pricing Complication of mixed supplies – What rate to apply? Input VAT a cost to business Securing exemption on inputs becomes important

Disputes and litigation

VAT - A simple tax?

Don’t rely on your supplier to get it right Advice from a bank acting in a bond sale: A"er a few enquiries, we are fairly certain that bond fees would be VAT exempt.

The relevant HMRC noBce is below. However, I definitely would recommend geFng an “official” answer as, as

discussed, we are not allowed to provide tax advice from a legal perspecBve!

32

VAT - Retail Distribution Review

Adviser charging §  Fees v commission §  Intermediary services – VAT exemption §  What’s different since 1 January 2013? §  Same service as before §  Advice or not advice? §  Advice – execution – funds management §  What predominates?


HMRC Guidance 1. Fact find/gather information about the customer 2. Research investment 3. Inform customer 4. Make recommendations 5. Arrange purchase of suitable investment products 6. Monitor, review and advise If the customer is looking to invest and the adviser makes arrangements as

at 5, and has evidence, adviser services are exempt even if advice is given in the process.

Services supplied under a separate contract for advice/recommendation only are subject to tax

Revenue Brief 9/13 – Employee Benefits Consultants – advising employers and employees on setting up and administering pension funds – subject to VAT

34


Bloomsbury Wealth Management LLP [2012] UKFTT Facts §  Financial services to HNWIs §  Advised asset choice, arranged purchase, conducted periodic reviews HMRC view – predominantly taxable services Taxpayer view – acting as an intermediary Decision in favour of taxpayer


Westinsure Group Ltd [2013] UKFTT 114 (TC) Facts: Broker network introduced brokers to insurers Negotiated preferential rates with insurers on behalf of members Provided updates and meeting points for members Provided support to brokers on regulatory matters Fees charged to brokers for network membership services Findings of the tribunal: Not part of the insurer – broker – customer chain Not acting as an insurance intermediary Services to brokers not VAT exempt

36

VAT – Funds Management

VAT Exemption – Management of Special investment funds as defined by the member state – EC Directive 2006/112/EC, Art 135(1)(g) UK Legislation, VAT Act 1994, Sch 9, Group 5 – §  Open ended Investment Companies (OEICs) §  Unit trusts §  Recognised collective investment schemes

VAT - Funds Management

JP Morgan Fleming Claverhouse Investment Trust plc ECJ (C-363/05)

Court decided that member states must consider: §  Objectives of the legal provision §  Fiscal neutrality v Narrow interpretation §  Collective investment schemes include investment trusts Left out in the cold? Pension funds Life funds


Wheels Common Investment Fund Trustees ECJ (424-11) (March 2013)

First Pension Fund Test Case Facts: §  Defined benefit pension scheme §  Contributions paid by employees and employers Characteristics: §  Not open to the public §  “Returns” = Pensions determined by final salary §  Investment risk borne by employers not members §  Not in competition with SIFs Decision: Not a SIF – Management fees not VAT exempt


ATP Pension Service ECJ (C-464/12) Reference to ECJ by Danish court §  Is a defined contribution pension scheme a SIF?

§  Is the management of such a scheme exempt from VAT? Referred October 2012 - Not yet scheduled for hearing


Implications for Life funds Wait for ATP outcome? Similarities §  Pension Business, Investment Business §  Protection Business §  Proprietary v Mutual Funds §  Unit funds v With Profits (discretionary bonuses) Investment Manager’s Position §  Protection of VAT Claims (4 year time limits)


Deutsche Bank ECJ (C-44/11) Facts: Advice, execution and investment management service Questions asked: Separate services of advice and execution or Single composite supply where purchase and sale of securities did not predominate (exempt) Court Decision: Not special investment funds (individual investors) Single composite service Narrow interpretation of VAT exemption Whole subject to VAT HMRC’s view on execution fees to be published


GfBk Gesellschaft für Börsenkommunikation mbH v Finanzamt Bayreuth ECJ (C-275/11)

Facts: §  Taxpayer made recommendations to investment fund manager §  Investment manager executed recommendations without question Questions: §  What is involved in the management of a special investment fund? §  Does it include advisory and information services? Features: Intrinsic connection of service to fund activity/ continuity/ autonomy/relevance Conclusion: Supply of investment management services Narrow interpretation of VAT exemption? Unique circumstances

EU VAT review 2005-2013

Norwegian BL-EU?

EU VAT Review

Sticking points §  Intermediaries and agents §  Outsourcing §  Claims handling §  Administration §  Closed book §  Portfolio sales (subject to VAT Swiss Re) – TOGC treatment in UK but

beware transfers to non-UK businesses

Arthur Andersen

Arthur Andersen ECJ (C472-03)

Insurance related services of insurance agents and brokers – Principle VAT Directive, art 135(1)(a) UK legislation VAT Act 1994, Sch 9, Group 2 – services of an intermediary including administration and claims handling

Arthur Andersen ECJ (C472-03)

Insurance Outsourcing §  Back office services §  Claims Handling

ECJ decided AA did not have the “essential characteristics” of either an insurance agent or broker – introducing customers to insurers

AA’s services subject to VAT Fiscal neutrality v narrow scope of exemption HMRC – 2005 AA consultation – put on hold pending progress on EU VAT

review. How long are HMRC prepared to wait?

VAT - Misselling Review Helpline Services

Misselling Review and Helpline Services Treated as VAT exempt intermediary services EU Commission “Pilot letter” 2012 HMRC Change of Policy These services now to be treated as subject to VAT R&C Brief 33/12 Effective 1 April 2013 A taste of things to come?

49

Europe Insurance Premium Taxes

ECJ, Case C-243/11, RVS Levensverzekeringen, 21 February 2013.

Facts: Dutch residents took out insurance contracts with an insurance

company resident in Netherlands (no IPT on life insurance) Customers changed residence to Belgium (IPT on life insurance) Belgian tax authorities demanded IPT on insurance premium

payments made to the Dutch company Company appealed

50


ECJ, Case C-243/11, RVS Levensverzekeringen, 21 February 2013

Advocate General’s Opinion – §  IPT liability determined by the place of residence of the customer at the

time the contract taken out §  not altered by the customer’s subsequent change of residence Court of Justice Decision – IPT is levied on insurance according to the “member state of commitment” determined by the customer’s habitual place of residence Concept of “MSOC” is dynamic – not fixed at any given time Member states entitled to levy tax at the time premiums are paid

51


Rates of IPT on Life Products (2012) Austria – 4%, 11% Belgium – 1.1%, 4.4% Cyprus – 1.5% Greece – 1.5%, 4%,5% Ireland – 1% Liechtenstein – 2.5% Malta – 10% Romania – 0.3%, 0.5% Slovenia – 6.5% Switzerland – 2.5% Administrative Issues Premium Pricing Issues

52

VAT Indirect Taxes Update

2012-13 A Review of Reviews

Retail Distribution Review Review of Funds Management

EU VAT Review IPT

John Brooks, LV=

Policyholder Tax

AFM Tax Training Day

03 June 2013

55 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Disclaimer

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation


Overview

Life policies

■  Taxation in hands of the policyholder

■  Finance Bill 2013 changes

■  Chargeable events reporting (HMRC audits and common issues)

■  LAPR abolition

Pensions

■  Topical issues

Taxation of Trail Commissions

RDR

■  Policyholder tax implications

Scotland Act


Life policy Basics of taxation

Taxed at company and policyholder level (from 1.1.2013 investment products only)

Premiums (no tax relief)

Taxed in life co @ 20% (through I-E system)

Tax on exit (it depends)


Life policy Basics of taxation

Taxed at company and policyholder level

Tax on exit (it depends)

Qualifying policy

- No further tax - No recovery of 20% tax suffered

Non qualifying policy

- Further tax liability for high rate taxpayer - Taxed as income not CGT -  Credit for deemed 20% tax suffered -  No recovery of 20% tax for non taxpayers


Qualifying v Non Qualifying policies

Regular, long term savings with protection Irregular, shorter term, investment products

- Term of at least 10 years - Term of any length

- Premiums payable for 10 years (annually) - Single premium commonly

- Premium spread conditions - Lumpy premium payments okay

- Minimum sum assured -  Minimal mortality/morbidity cover

- Must be certified by HMRC at inception (no longer required from 6 April 2013)

- No certification requirement

- Annual premiums for new post 6 April 2013 policies capped at £3,600p.a.

- No premium cap

Qualifying policy Non qualifying policy


Finance Bill 2013 Qualifying Policy premium cap

For policies incepted on or after 6 April 2013:

■  Premiums restricted to £3,600 per annum

■  Limit apply across all policies that are beneficially owned by an individual

■  Complex transitional provisions which will apply to:

-  Policies issued on or after 21 March 2012

-  Policies issued before 21 March 2012 where PPT extended after 21 March 2012

-  Provisions have effect of applying £3,600 premium cap from 6 April 2013

■  Limit the tax advantages (no high or additional rate tax) which investors can currently obtain

■  Declaration

■  Insurer reporting


When do chargeable events arise?

Maturity Only if the policy has been made paid up within 10 years

Yes

Death (of life assured) Only if the policy has been made paid up within 10 years

Yes

Surrender (full or part) Only if: -  occurs within first 10 years -  or policy has been made paid up within 10 years

Yes

Assignment (full or part) –for consideration

Only if: -  occurs within first 10 years -  or policy has been made paid up within 10 years And is for consideration

Only if for consideration

Qualifying policy Non qualifying policy


Finance Act 2012 Restriction of Previous Gains Deduction

Change announced in Budget 2012:

-  PG only deductible where earlier gains within scope of UK tax

-  Holder at time had to be UK tax resident

-  Doesn’t need to be the same person as for later gain

-  UK tax doesn’t actually have to be paid (just within scope)

-  Long awaited HMRC response to Mayes judgement

-  Onus will be on taxpayer to assess deductibility of previous gains

-  Insurers ignore change for reporting purposes

-  Has effect for policies issued on or after 21 March 2012

-  Assigned

-  Varied so as to increase the benefits secured


Chargeable events Reporting regime

Life company

HMRC

Policyholder

ALL

All assignments for consideration; all other gains in excess of limit (> half basic rate tax limit = £17,185 for 2012 / 13)


Chargeable events reporting Penalties

Failure to issue CEC- £300 Error in CEC- £3,000


Chargeable events reporting Common errors

■  Failure to recognise that a reportable event has occurred

■  Absence of certification for friendly societies

■  Problems calculating the gain

■  Late issue of certificates

■  Keeping up to date with changes in legislation

■  Systems issues

■  Incorrect treatment of clustered products

■  Application of new Qualifying Policy premium limit


Life assurance premium relief (‘LAPR’)

Income tax relief of 12.5% for eligible policies

To be repealed

■  For premiums due and payable on or after 6 April 2015

■  For premiums due and payable before 6 April 2015 not paid before 6 July 2015

Deadline for claims

Options (post LAPR)

■  Policyholder pay the increased premium

■  Premium reduced to “net” amount with corresponding reduction to sum assured

■  Insurer pay tax relief amount on behalf or policyholder?

Treatment of policy variations

■  Insignificant?


Pensions Overview of taxation

Contributions (tax relievable)

Exempt during the life (NBLTB)

Taxed on exit


Pensions Tax relief on contributions

Contributions (tax relievable)

No limit on the amount that can be contributed

Tax relief on contributions restricted to greater of:

o  100% of relevant UK earnings, and

o  £3,600

o  annual allowance may also impact

Annual allowance (‘AA’)

o  £50,000 for tax year 2013/14

o  £40,000 for tax year 2014/15 and onwards

o  Tax charge where contributions exceed the AA

o  At individuals marginal rate of tax

o Can be paid out of the pension pot

o  Unused AA can be carried forward for 3 years


Pensions Beware of the lifetime allowance!

Taxed on exit

Lifetime allowance (‘LA’)

o  Limits pensions savings benefiting from tax relief

o  £1.5m for tax year 2013/14

o  £1.25m for tax year 2014/15

o  Use proportion of LA each time take benefits

o  Excess over available LA subject to tax o  known as lifetime allowance charge o  taxed at 55% for lump sum, otherwise 25%


Pensions Authorised payments

Authorised payments include:

■  Pensions permitted by the pension scheme rules

■  Pension commencement lump sum

■  Stand alone lump sum

■  Serious ill health lump sum

■  Recognised transfers

■  Scheme administration member payments

■  Refund of excess contributions lump sum

■  Trivial commutation lump sum

■  Lifetime allowance excess lump sum

■  Short service refund lump sum

■  Winding up lump sum


Pensions Unauthorised payments

All payments which are not authorised payments

Examples include:

o  Benefits taken before age 55

o  Lump sum benefits (not complying with authorised payment regulations)

o  Trivial commutation in excess of one per cent of the fund

Consequences of unauthorised payments

o  Unauthorised payments charge (40%)

o  Unauthorised payments surcharge (15%)

o  Scheme sanction charge (15-40%)


Pensions Obligations of scheme administrator

Reporting to member Reporting to HMRC

Benefit crystallisation events Event report

Entitlement to pension Accounting for tax return

Unauthorised payments Registered Pension Scheme return


Pensions Topical issues

-

Incomplete records

Non monetary contributions

Increased focus on payments out

Rental arrears

Post death annuity payments

Simplified recovery

Are transfers “recognised transfers”?

Processes and controls

Legacy systems

Data gaps

Pressure to meet ‘go live’ dates

Topical issues

PRAS APSS106

Common HMRC audit issues

Pensions liberation Resource

RTI

From 6 April 2013 external audit no longer mandatory


Taxation of rebates Overview

-

Broadly not taxable

AMCs

Double taxation (s541A)

Treaty mechanism

UK non tax payers

Revenue & Customs Brief 04/13

Trail commission / rebates

- annual payments

ISAs SIPPs

Life policies Date of application

Impact on non UK

taxpayers

Subject to income tax

Payer must withhold basic rate tax

Payments post 6 April 2013

Soft landing


Taxation of rebates Life Assurance Company – No IFA

Fund Manager Unit Trust

Rebate credited as other income via

unit pricing

ü  No WHT X WHT

POLICYHOLDER

Life Company

AMC

Retained by company

Premium

Distribution (after AMC)

Taxed in life co as trading income and under s92 FA 2012


Taxation of rebates Life Policy with IFA

Fund Manager Unit Trust

POLICYHOLDER

Life Company

AMC

Premium

Taxed in life co as trading income and under s92 FA 2012

IFA

Fee/

Low

er F

ee

X C

ash

ü  No WHT X WHT

Distribution (after AMC)


Taxation of rebates Platform

PLATFORM

Fund Manager

ü  No WHT X WHT

INVESTOR: Individual, Charity

X Cash Rebate

Life Bond SIPP ISA

Investments

R

ebat

e

R

ebat

e

Cash investment


Retail Distribution Review (RDR) The basics.....

Change the relationship between the customer, provider and adviser

■  Applies to certain life insurance products and pensions

■  Charges to be agreed upfront directly between investor and adviser

■  Ban on commission payments from providers to advisers

■  Investor can either

–  Pay adviser charges directly, or

–  By deduction from their investment

Applies to new products from 1 January 2013


RDR Adviser charges: pensions

£8,000 per annum

£750 per annum

£2,000 per annum

Tax relief on gross contribution

£7,250 per annum

£750 per annum

£1,812 per annum

Tax relief on net contribution

Routed through product

Paid directly


RDR Payment for advice: life bonds

£23,000 (+£2,000)

£2,000

£25,000

£2,000

Post RDR – investor pays adviser directly Post RDR – life office acts as collecting agent

£2,000


And finally one to watch... Scotland Act Scottish Parliament power to set Scottish income tax rates for Scottish taxpayers

■  Can fix basic, higher and additional tax rates

■  Achieved by reducing corresponding UK tax rate by 10%

■  Adding Scottish rate (if any)

■  “Scottish rates” of income tax apply to non-savings income only

-  Non savings income includes pension annuity payments

■  UK set rates continue to apply to savings and dividends

-  Savings income includes life insurance gains

Possible fundamental issues for pensions (tax and non tax)


Carol Newham

KPMG LLP (UK) Tel: +44 (0)11 7905 4627 [email protected]

Contact details

Deloitte UK screen 4:3 (19.05 cm x 25.40 cm)

© 2013 Deloitte LLP. All rights reserved.

Foreign Account Tax Compliance Act Association of Financial Mutuals

3 June 2013

Tim Lightfoot



Agenda

FATCA -The big picture:

•  Overview

•  Overarching requirements

•  Timings

UK FATCA and insurance companies:

•  Who is caught

•  Financial Institutions - What you need to do: •  Registration •  Financial accounts •  Due diligence •  Reporting

Future developments

84



FATCA – The big picture

85



US assets

Fund

Insurance product

Platform

IFA / wealth manager

Custodian

Broker

US owner

Bank account Trust

Partner Jurisdiction

Financial Institutions Income & sales proceeds

IRS concern

•  US persons evade US tax through non-US structures and products

IRS response

•  Foreign Financial Institutions (FFIs) required to register with the IRS and report on all US Reportable Accounts and payments.

•  UK FFIs will report to HMRC under US-UK Inter-Governmental Agreement (IGA)

86

Foreign Account Tax Compliance Act Overview



Foreign Account Tax Compliance Act Overarching requirements

•  Final US Regulations issued 17 January 2013

•  544 pages

•  The requirements remain complex

•  The diagram opposite shows a structured funnel approach, which breaks down the requirements into logical steps aligned with the FATCA obligations

•  Key is to ensure that efforts are focussed on those areas that are in-scope for FATCA and that the required reporting and other requirements are met in an efficient manner

87

Identify Financial Institutions

Classify holders of Preexisting Financial Accounts

Identify Financial Accounts

Identify reporting and withholding requirements

Report information on relevant accounts to

relevant authority

Update onboarding of new Financial Accounts

Determining FATCA obligations



Timings

88

30 Sept 2016 Exchange of Reportable Information in respect of Calendar year 2015

2017 2016 2015 2014 2013

31 Dec 2013 Accounts opened pre-31/12/13 are deemed ‘Preexisting’

31 Dec 2014 Enhanced Review Procedures for Preexisting High Value Individual Accounts to be complete

1 Jan 2017 Rules requiring US TIN for Preexisting Account to be established

FATCA

31 Dec 2015 Review Procedures for Preexisting Entity Accounts and Lower Value Individual Accounts to be complete

17 Jan 2013 US Treasury released final regulations

25 Oct 2013 Deadline for FI registration if to be onn first participating FFI list

1 Jan 2014 Start

30 Sept 2015 Exchange of Reportable Information in respect of Calendar year 2013 and 2014



Foreign Account Tax Compliance Act Risks for Financial Institutions not achieving compliance

89

•  IRS will publish a list of all FATCA compliant global FIs on 2 December 2013 •  Businesses have until 25 October 2013 to register to be on first published list

1. Reputational

•  Many FIs have announced that they will only conduct business with FATCA compliant counterparties

•  Could create serious commercial issues for non-compliant FIs

2. Commercial

•  In the UK, compliance with FATCA will be mandatory under the Finance Act 2013

3. Legal

•  New FATCA equivalents are expected to increase the exchange of information going forward •  Act now to develop an approach that can be adapted

4. Future proofing



FATCA for UK insurers

90



Achieving FATCA compliance Which organisations are caught?

•  An insurance company will generally fall within one of the following categories:

91

•  Includes insurance companies which issue, or are obliged to make payments with respect to, Cash Value Insurance Contracts or Annuity Contracts

3. Financial Institution

•  Includes insurance companies which meet the Local Client Base exemption (see next slide)

1. Non-Reporting Financial Institution

•  Includes insurance companies which do not issue, or are not obliged to make payments with respect to, Cash Value Insurance Contracts or Annuity Contracts

2. Non-Financial Foreign Entities (“NFFEs”)



Which organisations are caught? Non-Reporting Financial Institutions

Local Client Base exemption applies if the FI meets the following conditions:

•  licensed and regulated under the laws of the UK;

•  no fixed place of business outside the UK;

•  does not solicit account holders outside the UK;

•  required to perform either information reporting or withholding;

•  at least 98% of its accounts held by UK or EU residents;

•  does not provide accounts to US persons, Non-Participating FI’s or Passive NFFE’s with US owners;

•  processes in place to monitor whether accounts are held by US persons, Non-Participating FI’s or Passive NFFE’s with US owners; and

•  closes or reports on such accounts that already exist.

92

Such deemed compliant FFIs may be required to register with the IRS?



Which organisations are caught?

•  An insurance company, which doesn’t issue and isn’t obliged to make payments with respect to, Cash Value Insurance Contracts or Annuity Contracts, will be considered an NFFE.

•  On receiving US sourced income, such entities will need to self certify that they are either, an Active NFFE or a passive NFFE.

93

Non Financial Foreign Entities (NFFEs)



Financial Institutions

94



We are a Financial Institution – what next? FI registration process

•  Registration starts15 July 2013 on a secure online portal

•  Register before 25 October 2013 to be on first IRS list

•  Each FFI will be issued with a Global Intermediary Identification Number (“GIIN”)

95

1.  FIs will enter irs.gov/FATCA and create an access code by providing general entity information

2.  Complete form with basic information (address, incorporation details, account types, branch locations, points of contacts etc)



We are a Financial Institution – what next?

96

Achieving compliance

Classify holders of Preexisting Financial Accounts


Identify reporting and withholding requirements

Report information on relevant accounts to relevant authority





97

•  Financial Accounts include:

-  Cash Value Insurance and Annuity Contracts -  Depository Accounts -  Custodial Accounts -  Equity or Debt interests held in partnerships and trusts

•  But the following are Exempt Products:

-  Retirement Accounts and Products; and -  Certain Other Tax Favoured Accounts or Products, include ISAs, Child Trust Funds, Approved SIPs

and HMRC approved Company Share Option Plans -  Likely to also include care annuities/immediate needs annuities?

What are Financial Accounts



•  Due diligence, aggregation and self-certification exercises required for: -  Pre-existing (pre 1/1/2014) individual and entity account holders; and -  New individual and entity account holders

•  Looking to identify:

•  US persons amongst individual account holders, and

•  US Persons, Passive NFFEs controlled by US Persons, and Non-Participating FIs amongst entity account holders

•  Aggregation balances required if computerised system can link an account by reference to a common data element

98

Classify holders of Pre-existing Financial Accounts Due diligence requirements



Classify holders of Pre-existing Financial Accounts Insurance specific relaxations (for UK insurers)

•  Exempt Products

•  De minimis exemption – Cash Value Insurance Contracts or Annuity Contracts with a balance of US$250,000 or less at 31 December 2013 (if election made) •  Unless and until balance exceeds US$1,000,000

•  Pre-existing Individually-held Cash Value Insurance Contracts or Annuity Contracts if both of the following conditions are met: -  law or regs effectively prevent the sale to US residents; and -  FI is required to either report or withhold under UK law with respect to insurance products held by

residents of the UK

•  Lobbying for trust-held products

99



How do we obtain self certification for new individuals?

•  Optional election to exempt Depository Accounts and Cash Value Insurance Contracts where the account balance is <$50k. Need to “elect in” to apply the thresholds

•  Self certification should be sufficient to confirm that new individual account holders are not resident in the US for tax purposes, and they are not a US citizen

•  Examples provided, such as for online applications may take the form of a ‘tick a box’ exercise, whereby applicants are asked to ‘Tick this box if you are resident in the US for tax purposes or if you are a US citizen’

•  A Financial Institution is required to confirm the reasonableness of any self certifications by comparing it to other information obtained (for example, AML and KYC)

•  For example, where an accountholder has provided a self certification confirming they are not US resident for tax purposes, but then provides a US address to the Financial Institution, this would require the Financial Institution to make further enquiries

•  Generally a Financial Institution can meet its individual account AML/KYC review requirements by relying upon the AML procedures performed by third parties

100




Update onboarding of new Financial Accounts What is needed for new entity accounts?

•  In respect of new Entity Accounts, the Reporting FI must determine whether the account holder is:

-  A Specified U.S. Person; -  A UK Financial Institution; -  A Partner Jurisdiction FI; -  A participating FFI, a deemed-compliant FFI, an exempt Beneficial Owner or an Excepted FFI; or -  An Active NFFE or Passive NFFE -  A Non Participating FI

•  May determine that an account holder is an Active NFFE, a UK FI, or a Partner Jurisdiction FI, on the basis of publicly available or currently held information

•  For entities identified as Passive NFFEs, Controlling Persons must be identified and self-certification obtained (as for new individuals)

101



Identify reporting and withholding requirements How, what and when do we need to report?

102

•  A return will need to be filed with HMRC by 31 May each year, such that HMRC can provide the information to the IRS by 30 September each year, commencing 2015

•  US TINs to be collected for all new individual US Reportable Accounts

Report due Sept 2015

Sept 2016 Sept 2017

The name, address, US TIN/DoB and account number of each U.S. Reportable Account Holder.

The account balance at the end of the relevant calendar year or other appropriate reporting period

The total gross amount paid or credited to the account

For Custodial Accounts: the total Gross proceeds from the sale or redemption of property paid or credited to the account

Calendar year 2015 Calendar year 2016

+ +

Calendar years 2013 and 2014



Future developments

103



Summary

FATCA -The big picture:

•  Overview

•  Overarching requirements

•  Timings

UK FATCA and insurance companies:

•  Who is caught

•  Financial Institutions - What you need to do: •  Registration •  Financial accounts •  Due diligence •  Reporting

Future developments

104



Contact details

105

Deloitte LLP Hill House 1 Little New Street London EC4A 3TR Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198 LDE: DX 599 www.deloitte.co.uk

Tim Lightfoot Senior Manager Corporate Tax

Direct: +44 (0) 113 292 1747 [email protected]



Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms. Deloitte LLP is the United Kingdom member firm of DTTL. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.

© 2013 Deloitte LLP. All rights reserved. Member of Deloitte Touche Tohmatsu Limited 106

EU FTT proposals www.pwc.co.uk

Roy Lonergan

3 June 2013

PwC

Agenda

•  Background

•  Overview of the draft directive

•  Current status and press coverage

•  Practical issues for insurers

•  Looking forward

•  Questions?

Slide 108 May 2013 EU FTT Seminar

PwC

Background

•  Objectives of EU FTT:

•  Enhanced cooperation - Draft Directive now applicable to just 11 participators (for now!)

•  Draft Directive proposes a start date of 1 January 2014 – is this likely?

•  Draft Directive has a broad scope

•  FTT projected global tax revenues of €31 billion per annum

- Harmonise indirect tax legislation on financial transactions - Ensure financial institutions “make a fair and substantial contribution to covering the costs of the recent crisis” - Create disincentives for certain transactions


PwC

Overview of the draft directive

1 Slide 110

May 2013 EU FTT Seminar

PwC

The EU FTT directive – The charge to tax

Who does it apply to?

“....all financial transactions, on the condition that as least one party to the transaction is established in the territory of a participating Member state and that

a financial institution established in the territory of a participating Member State is party to the transaction, acting either for its own account or for the account of another person, or is acting in the name of a party to the transaction”

What is the tax charge?

- 0.1% charge (o.o1% on derivatives) on both the buyer and seller

Financial transactions Established in a participating member state

Financial institution


PwC


Purchase, sale or exchange of: •  Transferrable securities •  Money market instruments •  Fund units •  Structured products Conclusion of derivative contracts Repo and stock lending agreements

Includes: •  Insurance and reinsurance enterprises •  Funds (including pension funds) •  Investment firms •  Regulated markets and similar trade

venues / platforms •  Credit institutions •  SPVs (including securitisation SPVs) •  Other institutions where more than half

of average annual turnover comes from financial transactions

Financial transactions Financial institution


PwC


A financial institution is established in a participating member state in any of the following cases:

•  Incorporated in a member state

•  Has a permanent address or usual residence in a member state

•  Branch in a member state

•  Authorised by authorities to act in a member state

•  Counterparty to transaction in member state

•  Issuance principle – Transaction involving FTT zone-issued instrument

Established in a participating member state


PwC

So what does this definition mean?

If there is a financial transaction involving a financial institution, FTT can apply under: •  Residence basis – Charge applies when either the buyer or seller (or both) is a financial institution resident in the FTT zone (including intermediaries) •  Issuance basis – Charge applies when instrument is issued in the FTT zone

regardless of where parties to the transaction are located

•  Narrow range of exemptions -  Member state Central Banks, European Central Bank, EU, some other

international organisations -  Exemptions for primary market, agents, insurance contracts, mortgage lending etc -  No exemption for intra-group transfers

Financial transactions Established in a participating member state

Financial institution


PwC

Who pays the tax and when is it due?

•  Financial institutions liable to pay the tax in the Member State in which they are established (or deemed to be established)

•  If FTT not paid, each party to transaction is joint and severally liable •  Chargeability – at moment financial transaction occurs •  Time limits for payment:

-  Immediate for electronic transactions -  Within 3 days for other cases


PwC

Example 1 – The residency basis

Where a company or fund enters into a transaction to purchase or sell securities a charge arises where any party to the transaction is resident in the EU FTT Zone.

Example: A Japanese bank purchases UK shares from a US fund via a French intermediary

•  Charge arises as a result of the residency principle (both sides of each transaction) •  No exemption for intermediaries (and no netting)

Japanese bank French intermediary US fund

* * * *

* EU FTT charged at 0.1%

Purchase Purchase


PwC

Example 2 – The issuance basis

Where a company or fund enters into a transaction to purchase or sell EU FTT Zone securities the FTT charge arises irrespective of the location of the counterparties. This is true wherever the counterparties are located.

Example: UK insurer sells Italian securities to a Japanese fund

•  Charge arises as a result of the issuance principle

UK Japanese fund

* *


Sale


PwC

Other

Reporting requirements •  Return to be submitted setting out FTT calculation on a monthly basis •  To be submitted by the 10th of each month

General anti-abuse •  Artificial arrangements to be discarded •  Arrangement (or series of arrangements) is artificial where lacks commercial substance


PwC

Current status and press coverage

2 Slide 119

May 2013 EU FTT Seminar

PwC

Status

•  Draft Directive issued February 2013 with proposed start date of 1 January 2014

•  UK Government lodged an application in April 2013 at the CJEU to challenge the FTT, subsequently supported by Luxembourg

•  Concerns around scope of FTT – extra-territorial nature and lack of exemptions

•  Our opinion is that this challenge is unlikely to derail the proposals but may well be some changes to scope

•  Progress in negotiations between member states currently slow – delays to the start date of 1 January 2014 likely?

•  Number of domestic FTTs already introduced, which would be replaced by EU FTT

PwC Survey – 75% of companies considered that the FTT would be introduced from 1 January 2015; 17% thought 1 January 2016 or later; 8% considered that FTT would never be introduced.


PwC

Where do we stand?

€

€

€

€

€ €

€

€+

€+

€+

€+

€+

€+

€+

€+

€

€

€

€+

€

€

10 countries Not intent on implementing an EU FTT via ECP

11 countries Opt-ins for the EU FTT via ECP

5 countries Potential ‘swing states’ in favour of an EU FTT

1 country For an EU wide FTT via ECP subject to conditions

French FTT on certain French equities and certain activities in France from 1 August 2012 (ADRs within scope from 1 December 2012)

Spanish FTT – currently on hold

Portuguese FTT – currently on hold

Italian FTT on securities from 1 March 2013 and derivatives from 1 July 2013

Hungarian FTT from 1 January 2013

Ukrainian FTT from 1 January 2013

€ Euro zone country

€+ Euro Plus Pact country


PwC

Recent press coverage

‘Tobin tax’ push causes dismay’

“very harmful effect”

THE WALL STREET JOURNAL “U.S. Slams EU's Tax-on-Trades Plan”

“France seeks overhaul of planned EU

“Robin Hood” tax”

“Europe should embrace a

financial transaction tax”

“ECB’s Noyer sees European

Transaction Tax Generating no revenue”

Bloomberg


PwC

Practical issues

3 Slide 123 May 2013 EU FTT Seminar

PwC

1) Commercial

Types of instruments

held

Reduced return on

investments

Ability to recharge FTT

costs?

Reduction in liquidity

Increased cost of capital

MCEV for life assurers

What are the commercial issues

for insurers?

Who will ultimately bear the tax – will it be passed on to policyholders? Do terms and conditions allow this? Is the pricing of your products effected?

FTT is expected to reduce liquidity. This will increase the cost of investments.

How much of your portfolio is subject to FTT? Would you need to change your investments?

How will FTT affect embedded value? Is the impact material? Effect on assumptions?

How often do you turnover your portfolio? Will changes to location of counterparties be required?

What implications does this have for your required return on capital?

What implications does this have for the cost of funding your business?


PwC

2) Technical

Branches

What are the main technical

issues and uncertainties?

Branches – lots of uncertainties


PwC

Branches

‘A financial institution shall be deemed to be established… it has a branch within that Member State, in respect of transactions carried out by that branch”

UK insurer

Irish branch

1) Where is the transaction booked?

2) How is capital allocated under OECD Part IV?

3) Are intra-branch transactions affected?

French branch

3) Transfer of a financial instrument?

2) Allocation of capital

1) Disposal of French shares


PwC

2) Technical

Branches

Holding and treasury

companies

Narrow range of exemptions Lloyd’s

UK Stamp Duty – double charge What are the

main technical issues and

uncertainties?

UK stamp duty – double charge on purchase of UK shares which are subject to FTT – see example.

Branches – lots of uncertainties

Will your group holding and treasury companies be within the scope? What impact will this have and can any of this be mitigated before the FTT comes into force?

Draft exemptions are narrow, e.g. no market-maker or intra-group exemptions.

Lloyd’s – complex market structure


PwC

Purchase of UK shares – A double hit?

The sale of UK shares may be taxed twice due to the existence of UK stamp duty e.g. on the purchase of UK shares by a German bank, both EU FTT and UK stamp duty or SDRT will be payable.

None of the proceeds of the FTT will be payable to non-FTT EU states such as the UK.

UK Bank German Bank

* *

+ UK stamp duty at 0.5%

Sale

+



PwC

3) Implementation

Who will be responsible?

Systems changes

Cost impact Contracts and terms

Reporting/ compliance

requirements What should organisations be thinking about in

terms of implementation?

If third party solutions are used, are these adequate for the purpose? How will the output of these be reviewed?

Who will be responsible for implementation and ongoing reporting within the organisation?

Are any systems changes required to comply with the reporting obligations in various Member States? Is more information on customers and counterparties required?

What is the cost impact of implementation and ongoing reporting?

How will you ensure you meet all compliance obligations?

What risk management procedures will be required to ensure ongoing compliance with the FTT once implemented?


PwC

What are the next steps?

•  Uncertainty over timing of introduction and scope of Directive

•  However, some form of FTT likely to be introduced

•  Insurers should be carrying out high level impact assessments to determine:

Ø  Likely impact of FTT on their business

Ø  Which products are affected?

Ø  What is likely cost?

Ø  How will the reporting processes be managed?

Ø  Ability to feed into lobbying processes

•  This would place insurers in a good position to move forward once the next draft of the Directive is published


PwC

Looking to the future…

•  Will the UK legal challenge succeed in changing the scope of the FTT?

•  What are the likely changes to the scope of FTT? (phased introduction? (equities only at first?) move to an issuance only basis? exclusion of pension funds? relaxation for repos?)

•  When is the EU FTT likely to come into force ?

•  If EU FTT not implemented, does this mean more domestic FTTs?

“In behind-the-scenes talks in Brussels, French officials are instead pressing for a form of “stamp duty” – moving the tax to an “issuance principle” – which would cover equities, some bonds and a narrow range of derivatives...... the eurozone backers of the tax are increasingly cooling on the Brussels design and searching for less ambitious alternatives”

- Financial Times, 29th May 2013


This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

130528-184604-SM-OS

133

AFM Training day – 3rd June

Paul Boyle/Ken Thomson– LBS Tina Jacob/Anthony Fawcett/

David Moran/Darryl Wall - CTIAA

134

HMRC topics

•  Introductions/Contact list • Commercial allocations – CRM perspective • Policy Holder Tax • Other issues/Questions

135

Contact details •  Ken Thomson [email protected]

•  Paul Boyle [email protected]

•  Tina Jacob [email protected]

•  Anthony Fawcett CTIAA – [email protected]

•  Andy Stewardson CTIAA- [email protected]

•  David Moran CTIAA– [email protected]

•  Darryl Wall CTIAA – [email protected]

136

Commercial Allocation– LBS CRM view

The consultation and legislative process is regarded internally (and externally, I hope) as very successful.

It is the industry’s success. • Legislation – consolidation and clarity • Stability of I minus E – focus on BLAGAB • Putting commercial reality at the centre • Shared understanding and ownership • FS&M working group included FS regs

137

Commercial Allocation

The legislation is not prescriptive about

allocation methods. It focuses on outcomes: Section 98 FA 2012 says:

•  “…it can reasonably be regarded as providing a fair method …for determining…what is referable to the company’s..” BLAGAB.

138


• We need consistency between methods in one company.

• But what produces a “fair” result in one company may not produce a “fair” result in another.

• We have seen broadly consistent patterns to methods and this is reflected in the guidance.

• But there is no HMRC template and what works for one fund won’t necessarily work for another.

139

Commercial Allocation •  Most big funds have had/ still in pre-return discussions.

•  Commercial allocation has not been as challenging as we had expected, but detailed work & actuaries/others involved.

•  It has been an education for HMRC (and sometimes for the tax depts).

•  We expect the allocation methods to follow commercial reality, or realities.

•  So if we establish the commercial reality is that mean fund liability is how a smaller business is run then continuing that could be the fair answer.

140


• Discussions so far have focused on a number of specific issues: – Where do we draw the line on

“matching”? – Allocating gains by “contribution”. – The appropriate residual asset key. [Shareholder/structural boundary].

141

Commercial Allocation • The outcome to pre-return discussions is a

mutually agreed method and many agreed already.

• For HMRC the only significant risks then become:- –  Whether the method has been properly applied

–  Possible changes to the business in an accounting period.

–  And how do methods for an accounting period get rolled forward?

–  Behavioural change in response to the new regime

[The transitional adjustment/ Failures in the regime]

142

Guidance • HMRC has issued guidance (final or draft)

on: – Protection – Commercial Allocation – Transition – Transfers of business – CFCs/S212

• No new LAM, as yet. But it will also include any necessary FS regulations guidance.

143

Qualifying Policies: Annual Premium Limit : Overview

• Clause 25 & Schedule 9 Finance Bill 2013

• Applies from 6 April 2013 •  £3,600 per annum

144

Annual Premium Limit: Transitional Period

•  21 March 2012 – 5 April 2013 • Qualifying Policies • Restricted Relief Qualifying Policies (RRQPs)

145

Annual Premium Limit: Assignments

• On or after 6 April 2013

• Policy is non-qualifying after assignment

• Excluded assignments

146

Annual Premium Limit: Required Statements

• When required

• What information required

• The form of the statement

147

Annual Premium Limits: Reporting requirements

• Only apply to policies issued on or after 6 April 2013

• Time limits

• The form of the report

148

Annual Premium Limit: Where We Are Now • Public Bill Committee on 21 May 2013

• Regulations

• Guidance

149

Closing

• Any other issues or questions?

Documents

AFM Tax Training Day 2013 Tax Training day slides... · Successions • Clause 32 ... AFM Tax Training Day 2013 June 2013 . PwC Corporation tax losses Group relief – gross profits