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PM-Tax | Our Comment Wednesday 16 April 2014 In this Issue News and Views from the Pinsent Masons Tax team PM-Tax Our Comment Simple or Compound interest – what does Littlewoods’ £1.2bn award teach us? by Jake Landman House of Lords Select Committee Report on Personal Service Companies by Chris Thomas 2 Recent Articles Scottish Independence – possible tax consequences for UK businesses by Karen Davidson Construction projects in Africa – an overview of the tax issues by Heather Self Brave New World – Self-certification of Tax Advantaged Employee Share Plans by Matthew Findley and Suzannah Crookes 6 Our perspective on recent cases Procedure Bilaman Management Services LLP v HMRC [2014] UKFTT 270 (TCC) 13 Substance Felixstowe Dock and Railway Company Ltd and others v HMRC C 80/12 Asda Stores Limited v HMRC [2014] EWCA Civ 317 HMRC v Colaingrove Limited [2014] UKUT 01432 (TCC) Susan Corbett v HMRC [2014] UKFTT 298 (TC) Astral Marine Services Limited v HMRC [2014] UKFTT 269 (TC) Events 19 People 20 © Pinsent Masons LLP 2014 @PM_Tax Due to the Easter break, the next edition of PM-Tax will be published on 7 May

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Page 1: PM-Tax Wednesday 16 April 2014 - Pinsent Masons · PM-Tax Our Comment Wednesday 16 April 2014 In this Issue News and Views from the Pinsent Masons Tax team PM-Tax Our Comment •

PM-Tax | Our Comment

Wednesday 16 April 2014

In this Issue

News and Views from the Pinsent Masons Tax teamPM-Tax

Our Comment• Simple or Compound interest – what does Littlewoods’ £1.2bn award teach us? by Jake Landman • House of Lords Select Committee Report on Personal Service Companies by Chris Thomas

2Recent Articles• Scottish Independence – possible tax consequences for UK businesses by Karen Davidson• Construction projects in Africa – an overview of the tax issues by Heather Self• Brave New World – Self-certification of Tax Advantaged Employee Share Plans by Matthew Findley and Suzannah Crookes


Our perspective on recent casesProcedure• Bilaman Management Services LLP v HMRC [2014] UKFTT 270 (TCC)

13Substance• Felixstowe Dock and Railway Company Ltd and others v HMRC

C 80/12• Asda Stores Limited v HMRC [2014] EWCA Civ 317• HMRC v Colaingrove Limited [2014] UKUT 01432 (TCC)

• Susan Corbett v HMRC [2014] UKFTT 298 (TC)• Astral Marine Services Limited v HMRC [2014] UKFTT 269


Events 19 People 20

© Pinsent Masons LLP 2014


Due to the Easter break, the next edition of PM-Tax will be published on 7 May

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PM-Tax | Wednesday 16 April 2014

PM-Tax | Our CommentPM-Tax | Our Comment

Jake Landman comments on the decision in Littlewoods Retail Limited and Others v HMRC [2014] EWHC 868 (Ch).

Simple or Compound interest – what does Littlewoods’ £1.2bn award teach us?by Jake Landman

This item first appeared on LexisPSL Tax on 10 April 2014

Briefly, what is the background to this case?Between 1973 and 2004 the UK required certain companies in the Littlewoods group to account for VAT in a way which was contrary to EU law (the Underlying VAT issue). HMRC subsequently repaid most of the overpaid VAT to Littlewoods with simple interest thereon (pursuant to section 78 of the Value Added Tax Act 1994). This case considered whether Littlewoods are in fact entitled to more than simple interest and instead should be paid at a compound rate (the Entitlement Issue).

What did the court decide? Why?HMRC asked the High Court to revisit the Underlying VAT issue in addition to considering the Entitlement Issue. The Judge however concluded that HMRC were not permitted to re-open the Underlying VAT issue applying principles such as estoppel and abuse of process.

Turning to the Entitlement Issue guidance was given by the Court of Justice of the European Union (CJEU) on this point in the Littlewoods case back in July 2012. By way of recap the CJEU ruled that the refund of VAT with simple interest thereon is sufficient under EU law provided there are not similar domestic interest claims which provide only for compound interest (the equivalence point). In addition simple interest must amount to “an adequate indemnity for the loss occasioned through the undue payment of VAT” (the effectiveness point).

Regarding the effectiveness point the term “adequate indemnity” is irregular language for the CJEU and consequently uncertainty existed as to its meaning. HMRC highlighted the fact that the paragraph of the CJEU judgment immediately following reference to “adequate indemnity” referred to the payment of interest made to Littlewoods exceeding the principal sum “by more than 23%”. HMRC argued that this was an indication of what the CJEU regarded as adequate in Littlewoods’ case. HMRC also suggested that if the CJEU had concluded compound interest was required then it would have expressly stated this.

The High Court was not persuaded by HMRC’s submissions however. The judge held that, reading the July 2012 CJEU decision

in the context of prior and subsequent CJEU decisions, adequate indemnity required an amount of interest which is broadly commensurate with the loss suffered by the taxpayer of the use value of the overpaid tax. Compound interest is therefore generally required under EU law where taxpayers have overpaid VAT in breach of EU rules.

The High Court also rejected HMRC’s attempt to rely on a change of position defence on the basis that EU Law does not recognise this.

On what basis should compound interest be calculated? Could this change in future cases?The judge found that EU law requires that Littlewoods should be entitled to recover the lost use value to it of the overpaid VAT. This is arguably the commercial rate of interest over the period compounded. Rather than claiming a commercial rate Littlewoods was content to receive the government’s borrowing rate however. Other taxpayers might not make this concession in future cases.

HMRC argued that the payment to Littlewoods should be reduced by the additional corporation tax which Littlewoods would have had to pay if the overpayments of VAT had never been made. The judge said that no account should be taken of the additional corporation tax however.

It is important to note that quantum and the correct basis for calculation is likely to be explored further in both the Littlewoods case and others. There is not yet therefore a settled basis for calculation.

Given that the decision conflicts with HMRC’s view that simple interest, not compound interest, is payable on refunds of VAT, we should presumably expect an appeal?HMRC have indicated to the press they will be appealing the Littlewoods judgment and therefore it is unlikely to be the final word on the Entitlement Issue. The judge in Littlewoods commented that he had found the Entitlement Issue difficult with some aspects of the guidance given previously by the CJEU being hard to reconcile. HMRC are likely to focus on this in the event the Court of Appeal and/or the Supreme Court revisit the Entitlement

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PM-Tax | Our Comment



Simple or Compound interest (continued)

Issue in the Littlewoods case or in John Wilkins (Motor Engineers) Ltd and Others v HMRC [2010] EWCA Civ 923 (known as the Compound Interest Project. Pinsent Masons represent four of the five lead appellants in the Compound Interest Project. The fifth appellant is separately represented.

Should businesses be making claims for compound interest in the meantime, and if so in what circumstances? Please explain the importance of, and difference between, making Woolwich and DMG based claims.The Littlewoods case is proceeding on the premise (agreed between Littlewoods and HMRC) that entitlement to compound interest is given effect in the High Court not in the Tax Tribunal (the Remedy Issue).

On the basis of this common ground the High Court looked at whether the statutory scheme should be read/overridden to allow one or both of two types of restitutionary claim – namely “Woolwich restitution” and “mistake-based restitution”.

HMRC argued that only a “Woolwich claim” should be allowed, and therefore any entitlement would be restricted to tax overpaid in the 6 years prior to the issuing of court proceedings. The judge in Littlewoods rejected this approach however and ruled that mistake-based restitution claims could be made on any overpayment discovered, rather than made, within 6 years of discovery of the mistake. Such a ‘mistake’ would include a decision of the CJEU (formerly the ECJ) confirming that a taxpayer had overpaid VAT as a result of HMRC’s incorrect application of the law. This is positive for taxpayers who have made or intend to make High Court claims within six years of the decision of the CJEU on which their repayment of VAT was based.

The Court of Appeal has not yet ruled on the Remedy Issue in the Compound Interest Project litigation. It is possible that the Court of Appeal will conclude that entitlement to compound interest is given effect in the Tax Tribunal as well as (or instead of) the High Court. This is key for taxpayers who do not have an “in time” High Court claim but did make (or intend to make) a claim for compound interest to HMRC within three (increased to four with effect from 1 April 2009) years of the repayment of their VAT and then appealed HMRC’s rejection to the Tribunal within 30 days.

Does this decision have wider implications for the way HMRC calculates interest on repayments of overpaid tax?Although the judgment concerns VAT it arguably has read across to other taxes overpaid in breach of EU law.

Jake Landman is an associate in the Tax team. He advises individuals and corporates on resolving disputes with HMRC in all aspects of direct and indirect tax. His cases often have an EU law basis.

E: [email protected]: +44 (0)20 7054 2572

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PM-Tax | Our CommentPM-Tax | Our Comment

A House of Lords select committee report says that the complex “IR35” legislation designed to prevent the use of personal service companies as a means of avoiding income tax and national insurance contributions may cost taxpayers more to comply with than the tax savings claimed by the government. However, the committee rejected suggestions that responsibility for complying with IR35 should be transferred from the contractor to the end user of the individual’s services.

The report’s conclusion that liability should not be transferred to end users will be a relief to the many businesses which contract labour through personal service companies. The suggestion (made by the ICAEW amongst others) of putting the responsibility on end users was highly controversial and would have placed a substantial burden on businesses, requiring a wholesale review of their terms of engagement and considerable ‘due diligence’ which they would often not be well placed to carry out.

Many contractors choose to operate through a personal service company – a company, the sole or main shareholder of which is also its director, who, instead of working directly for clients, or taking up employment, operates through his company – and are content to take the PAYE risk in return for the wider advantages that they enjoy by contracting in this way.

There can be tax benefits from operating through a personal service company, which include more generous expense deductions, being able to retain surplus profits in the company without suffering the higher income tax rates on them and making payments out by way of dividend rather than salary, avoiding NICs. However, many also choose a personal service company for non tax reasons such as limited liability and flexibility. End users also benefit from increased flexibility and the ability to keep workers off payroll (and often outside of ‘headcount’ limits) as well as avoiding the risk of liability for employer NICs – although this may be reflected in the remuneration that is paid.

First introduced in 2000, IR35 is intended to stop contractors in “disguised employment” from using limited companies to avoid paying tax and NICs. It ensures that contractors have to pay tax and NICs as employees, even when they are working via a personal service company if, had they contracted directly with the end user, they would have been treated as employees.

According to HMRC estimates provided to the committee, there are around 200,000 personal service companies operating in the UK and the number has more than doubled in the past decade. However, the committee said that there was a “general lack of information” about how widespread the use of such companies was, “due, in no small part, to the absence of reliable information collected by HMRC”.

In November 2013 the House of Lords asked the committee to consider the consequences of the use of personal service companies for tax collection, and to make recommendations. The committee issued a call for written evidence and took oral evidence from a number of witnesses. It was disappointed at the lack of co-operation from the IT and banking industries, which are believed to be significant users of personal service companies, as well as from the government – with the Treasury refusing to give oral evidence.

Back in July 2010 the government announced that a review of small business taxation to be undertaken by the Office of Tax Simplification (OTS) would include exploring alternative legislative approaches to IR35. The OTS recommended that the government should look at the integration of income tax and national insurance, which would remove one of the incentives for incorporation. In the meantime it suggested suspending IR35, with a view to permanent abolition.

The House of Lords committee said that the abolition or suspension of the IR35 legislation would be unwise if the legislation has the exchequer protection effect claimed for it by HMRC. However, Chair of the House of Lords committee, Baroness Noakes, said that HMRC had “failed to demonstrate a sound basis” for the £550 million in tax and NICs that it claimed would be at risk if the IR35 legislation was to be abolished. The committee recommended that HMRC publish a detailed assessment of its estimate. It also recommended that the government re-examine the longer term case for combining taxes on income and national insurance.

House of Lords Select Committee Report on Personal Service Companiesby Chris Thomas

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House of Lords Select Committee Report (continued)

Whilst many choose to operate through personal service companies, the committee received evidence that low-paid workers may also be pushed into being employed via personal service companies so the end-users can save national insurance. In such cases workers may not be aware that this means they have fewer employment rights. The committee recommended that this aspect be assessed by the Low Pay Commission.

The report noted that the legislation did not tend to cause significant issues for businesses that used contractors, but that it could “arouse considerable hostility” from contractors themselves. The committee received numerous comments about the questions about personal service companies asked on the personal tax return SA100. HMRC admitted that these questions were often left uncompleted, but that it did not consider it a key question that would render the individual liable to penalties for an incorrect return. The committee recommended that HMRC reconsider whether the questions it asked on tax returns were necessary and, if so, make it clear that compliance was essential in order to increase certainty for taxpayers.

The report also recommended that HMRC revise their ‘business entity’ test, introduced in May 2012 as a way for contractors to assess their risk of being caught by the legislation. Many users were unaware that the test was supposed to only provide an indication of whether there was a risk that IR35 applied, rather than being a definitive test.

The committee noted that there had been a decrease in the number of annual investigations in relation to IR35 from over 1,000 a year in the tax years 2002-04 to only 256 in the tax year 2012-13. The report said that the committee was not convinced that the resources currently allocated by HMRC were sufficient to ensure compliance with the IR35 legislation. It concluded they many individuals “simply take a risk that Her Majesty’s Revenue and Customs will not look into their employment status”. It recommended that HMRC should “articulate with greater clarity the costs they incur from IR35 compliance efforts and administration, and the relationship between those costs and the overall yield gained from the legislation”.

We wait to see how HMRC and the government will respond to the committee’s report.

Chris Thomas is a Senior Associate in our tax team with extensive experience in advising employers on a range of employment tax issues (including issues for internationally mobile executives), the taxation of shareholders, management teams and high net worth individuals (including on MBOs and secondary buyouts). He also specialises in trust law, with a particular focus on commercial trust arrangements and advises universities on charity law issues.

E: [email protected] T: +44 (0)121 623 8699

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PM-Tax | Our Comment

by Karen Davidson

Scottish Independence – possible tax consequences for UK businesses

The tax consequences of an independent Scotland for businesses operating in Scotland will depend upon a number of factors, including the nature and structure of their operations in Scotland, but also whether Scotland remains a member of the EU and the nature of the tax regime adopted by an independent Scotland, all of which is still currently up in the air.

Corporation taxThe corporation tax position in relation to the profits from Scottish operations will depend upon whether the Company operates in Scotland through a subsidiary that is tax resident in Scotland or through a company tax resident in the remaining part of the UK (which we will call for these purposes “the UK”).

If the Company operates in Scotland through a Scottish company, it will be subject to the Scottish equivalent of corporation tax on its profits. If this is less than UK corporation tax (the Scottish Government proposes a target rate of 3% less than the prevailing UK rate) there may be advantages in operating in Scotland through a Scottish company.

If the Company operates in Scotland through a UK company, it is assumed that Scotland and the UK would enter into a double tax treaty based on the OECD model treaty setting out which jurisdiction would be able to tax various types of cross border profits. The Company would probably be subject to Scottish tax on the profits it derives from activities in Scotland, if it was deemed to have a permanent establishment in Scotland. It would then likely get credit against its UK tax liability for tax paid in Scotland.

Services provided between group companies in the UK and those in Scotland would have to be provided on an arm’s length basis, in order not to fall foul of the UK’s transfer pricing rules. The rules

prevent a group from getting a tax advantage by manipulating prices for intra group services to increase profits in low tax jurisdictions. The rules technically apply currently even as between UK companies, but would become more important if there was a differential between UK and Scottish corporation tax rates. Various other UK anti avoidance provisions would also need to be considered including the ‘debt cap’ rules which can reduce the tax deductions available for interest payments.

VATThe VAT position will depend upon whether Scotland stays within the EU – if it does it will be required to have a VAT system as set out in Council Directive 2006/112/EC (the VAT Directive). There would have to be a minimum rate of VAT of 15% but EU law does not prescribe a maximum.

On the basis that Scotland stays within the EU, the main issue will be whether the ‘place of supply’ rules mean that the Company is treated as making supplies in Scotland.

The general rule regarding the supply of business-to-business (B2B) services is that, where a cross-border supply of services is made, the place of supply is where the customer belongs.

A business person is treated as belonging:• if they have only one business and/or fixed establishment, in the

country where the establishment is located; or • if they have a business and/or fixed establishment in more than

one country, in the country of the establishment that is most directly concerned with the supply.

As the Scottish independence referendum on September 18 edges closer, and polls are starting to show a closing of the gap between the Yes and No campaigns, organisations with operations in Scotland are considering what an independent Scotland would mean for them. PM Tax has previously highlighted that changes to the tax system are going to happen as a result of the Scotland Act 2012, even if there is a No vote to independence. This act changes the basis of some property, environmental and income taxes in Scotland from 2015. This article examines some of the possible tax issues that a company based in England, Wales or Northern Ireland (the Company) operating in Scotland will have to grapple with in the event of a Yes vote.

PM-Tax | Recent Articles

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Scottish Independence (continued)

As these are the rules that will apply currently to supplies made by the Company, the only difference is likely to be if supplies are treated as being made in Scotland.

If the Company ‘belongs’ in the remaining part of the UK for these purposes but the customer ‘belongs’ in Scotland, the customer will have to account for Scottish VAT using the reverse charge mechanism – this means that the customer will be treated for Scottish VAT purposes as supplying the services to itself – it therefore accounts for VAT at the Scottish rate and would then reclaim the VAT input tax if it was fully taxable.

If both the Company and the customer ‘belong’ in Scotland, the Company will have to charge Scottish VAT.

For supplies of services to non business customers (B2C) the general rule is that the supplies take place where the supplier belongs. This will therefore depend upon how the Company organises its operations – but may mean that supplies are treated as made by the Company in Scotland. The Company would need to register for Scottish VAT and account for VAT at the required rate.

For supplies of goods, supplies by the Company sending goods to a VAT registered business in Scotland will be zero rated, with the recipient of the supply applying the reverse charge and accounting for Scottish VAT. For supplies of goods to non-business customers located in Scotland, the Company will apply UK VAT. If the Company is making its supplies to Scottish customers through a fixed base in Scotland it will have to register for and apply Scottish VAT.

If Scotland does not remain within the EU, the VAT position will depend upon whatever VAT equivalent system (if any) that Scotland decides to adopt.

Property tax The tax treatment of assets held in Scotland will depend upon whether they are held by a subsidiary which is resident in Scotland or by the Company. If they are held by a Scottish resident company, the position will depend upon the tax system adopted by an independent Scotland.

If they are held by the Company, assuming that a double tax treaty is negotiated in the form of the OECD model treaty, it is likely that gains arising from immovable property, such as land will be taxed in Scotland and any other assets used by a permanent establishment in Scotland of the Company will be subject to tax in Scotland.

Regardless of the outcome of the vote on Scottish independence, from April 2015 UK Stamp Duty Land Tax will be replaced in Scotland by a Land and Buildings Transaction Tax collected by the Scottish Government. It will apply to all real estate transactions in Scotland. The rates of taxation for the Land and Buildings Transaction Tax will be announced after September, but it is anticipated that it will move away from the ‘slab’ structure of UK stamp duty land tax, in which tax is levied against the entire purchase price at a fixed rate depending on the value of the property. Scottish Ministers have said they will implement a progressive structure in which the marginal tax rate is charged on the value above certain thresholds, in an effort to reduce the distortive effects of the existing UK scheme. A separate tax return may be required for Scottish land transactions.

Scotland will also have its own landfill tax from April 2015. The rates will be announced after September, but Scottish Ministers’ strong commitment to the Zero Waste Strategy, sustainability and recycling all to prevent waste to landfill mean that this Scottish rate is unlikely to be set lower than the UK rate and could be set at a higher rate. Again, a separate tax return may be required, depending on the final designs for taxation and collection.

Employment taxRegardless of the outcome of the vote on Scottish independence, in April 2016 the Scottish Parliament will assume responsibility for setting a Scottish Rate of income tax on personal income. The basic, higher and additional rates of UK income tax will be reduced by 10% for Scottish taxpayers. The Scottish Parliament will set a new Scottish rate – with no upper or lower limit – which will apply equally to all of the reduced main UK income tax rates. The initial Scottish income tax rate is anticipated to be 10% to maintain overall parity with the rest of UK, but in time it may be varied above or below the UK rate. A new tax code will be required for all Scottish-domiciled employees (those spending more than half of their time in a tax year in Scotland). Payroll systems will need to be amended to accommodate any Scottish staff.

UK-domiciled employees working in an independent Scotland would be treated as mobile workers for tax purposes and would be subject to the rules agreed in any double tax treaty between the two countries on taxation of income earned in an independent Scotland. The Company may need to consider tax equalisation agreements if it has UK-based employees working in Scotland for long term projects, to ensure that such employees do not suffer more tax as a result of working in Scotland, rather than in the rest of the UK.

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PM-Tax | Recent Articles

Scottish Independence (continued)

Timing of any changesIn the event of a Yes vote then ultimately everything would be up for negotiation in a division of assets and liabilities to be agreed by the UK and Scottish Governments. The Scottish Government has set a target date for the conclusion of such negotiations of 24 March 2016, but the likelihood is that detailed negotiation would continue beyond this date.

What happens if there is a No vote?Following a No vote and the UK General Election on May 7 2015, the next UK Government may consider the further devolution of powers and responsibilities from Westminster to the Scottish Parliament. There are no defined proposals for this at this stage, but suggestions have included the devolution of corporation tax, national insurance, VAT, and capital gains tax to Scotland. Clarity on this would not emerge until after the 2015 General Election.

Karen Davidson is a Legal Director, based in our Glasgow office and specialises in corporate and business tax as well as advising in relation to employee share incentive arrangements. Her experience includes advising on the tax aspects of corporate mergers, acquisition disposals, joint venture arrangements and reorganisations. In addition she advises on the design, establishment and operation of share incentive arrangements and the implications of corporate transactions on such arrangements.

E: [email protected]: +44 (0)141 567 8535

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This article takes as an example a road project in Rwanda, purely for illustrative purposes. However, many of the points made will apply with equal force to projects elsewhere in Africa – and indeed to any international construction project. Africa is not one country but many, so the example chosen is of a relatively small, poor country which has shown a keen commitment to transform itself from a primarily subsistence agricultural producer to a knowledge economy, with increased urbanisation and a need for modern infrastructure. A brief look at the website of the Rwandan Development Board (www.rdb.rw) highlights four major road projects, a new airport at Bugeseera and the development of two major regional railway lines.

So let us assume that a European construction company, EU Construct, has decided to bid for one of these projects. EU Construct will be familiar with the tax system in its home country and needs to understand the implications of carrying out a project in Rwanda.

The first choice will be whether to use a resident or non-resident company to carry out the project. In either case, the local profits will be subject to Rwandan corporate income tax at 30%: the activities will be sufficient to constitute a local “permanent establishment” which will be fully liable to local tax. Some incentives may be available to reduce the tax bill, particularly for major projects which are approved by the Investment Authority. Compliance will be required with local filing requirements for corporate income tax, and employment taxes and social security contributions must be withheld under pay as you earn (PAYE) rules. Any employees being seconded to work on the project will need advice on their personal tax position, which EU Construct will usually provide as part of their service to expatriate employees.

Where any services are provided to the local company by a related party, an “arm’s length price” must be charged, calculated in accordance with OECD guidelines. So, for example, if the head office provides administrative support for accounting and financial record-keeping, the price charged should be in line with what a third party supplier would charge for these services.

A particular issue to watch out for is withholding taxes: Rwanda imposes a 15% withholding tax on technical service fees, and this is likely to apply to a wide range of services – including intra-group management services, or third party advice on issues such as geological surveys. Such withholding taxes are often reduced under the terms of a Tax Treaty, but Rwanda has a very limited treaty network – the only treaty with an EU country is with Belgium, where the rate for technical service fees is reduced to 10%.

Withholding taxes also apply to payments of interest, dividends and royalties. EU Construct will have to decide on the proportions of debt and equity to be used to finance its investment: thin capitalisation rules will limit the amount of debt (generally to four times equity), and a withholding tax of 15% will apply to interest payments. However, using debt rather than equity, to the extent this is possible, generally gives a more flexible route to repatriating funds during and at the end of the project.

EU Construct may decide to hold its investment via an intermediate holding company, for example in Mauritius. Mauritius is often used as an intermediate location, as it has built up a reputation as a stable financial centre, and has a good network of both Tax Treaties and Investment treaties. In the case of Rwanda, there is a Tax Treaty but it has not yet been ratified; the position is similar for the Bilateral Investment Agreement. Nevertheless, Mauritius may still be attractive, particularly if EU Construct is planning to invest in a series of projects in other countries in the region.

The projected rapid growth of many economies in Africa will lead to a significant need for investment in infrastructure projects of all kinds – such as road, rail, energy and urban infrastructure. For European construction companies considering bidding for such projects, what are the key tax issues to be considered?

PM-Tax | Recent Articles

Construction projects in Africa – an overview of key tax issuesby Heather Self

This article appeared in Construction Europe – April 2014

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Construction projects in Africa (continued)

A word of caution is necessary concerning the use of low tax jurisdictions such as Mauritius, however. The OECD is currently carrying out a major project on the application of international tax rules to multinational companies, known as the “Base Erosion and Profit Shifting” (BEPS) project. This has led to something of a backlash against the use of low tax jurisdictions, even where there are good commercial reasons – including the availability of a treaty network. Some countries are seeking to ignore the existence of an intermediate holding company, arguing that it is a mere conduit and should not be entitled to Treaty benefits. Recently, NGOs such as ActionAid have been campaigning particularly against Mauritius, saying that it is depriving the ultimate investment country (Rwanda in this case) of much-needed tax revenues. Whilst the arguments are sometimes over-simplistic, there are potential reputational risks to be considered, and companies which decide that they will establish an entity in a low-tax jurisdiction should take care to ensure that it has an appropriate level of real substance, and be ready for potential challenge.

Finally, it is important to be prepared for the risk of tax disputes. Developing a constructive relationship with the local tax authority, and building trust by being prepared to share information and explanations, is a good first step. However, with Governments keen to maximise tax revenues, and local tax authorities being short of resource (and sometimes of business awareness), disputes can still arise. If so, it is important to approach these as you would with a commercial dispute: seek a shared understanding of the facts, and agreement on the scope of any technical differences of view. Keep control of the issue, and whenever possible use negotiation and mediation skills (even if not in a formal mediation process) to seek to reach an outcome which is acceptable to both parties.

In summary, there are significant opportunities to be found in construction projects in Africa, but inevitably there are also risks to be managed. Tax issues need to be well-understood, so that they can be built into the project plan, and a pro-active and co-operative approach should be taken.

Heather Self is a Partner (non-lawyer) with almost 30 years of experience in tax. She has been Group Tax Director at Scottish Power, where she advised on numerous corporate transactions, including the $5bn disposal of the regulated US energy business. She also worked at HMRC on complex disputes with FTSE 100 companies, and was a specialist adviser to the utilities sector, where she was involved in policy issues on energy generation and renewables. She is a member of our Africa Group. Heather has been shortlisted for Taxation’s tax writer of the year award.

E: [email protected]: +44 (0)161 662 8066

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PM-Tax | Wednesday 2 April 2014

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A new regime for the administration of employee share plans took effect on 6 April 2014 following recommendations made by the Office of Tax Simplification. Further details in respect of the new regime for “self-certification” have been emerging over the last few months, as HMRC has been developing the detail of its operation. The new rules apply to all existing and new “tax-advantaged” (previously “approved”) share plans, including the Share Incentive Plan (SIP), the Save-As-You-Earn share option plan (SAYE) and the Company Share Option Plan (CSOP). There are additional changes affecting Enterprise Management Incentives (EMI) and non-tax advantaged arrangements providing employment-related securities.

What should I be doing now?From 6 April 2014, companies are required to register their new and existing tax-advantaged share plans online. Annual returns for the current and future tax years will also need to be submitted electronically. The effect is:

Online registration and filing• Companies should ensure they are set up for online filing

(through PAYE online) and check that the appropriate people have access to the system, including authorising access for agents. Companies themselves must register new or existing share plans with HMRC but agents can assist with online filings, such as annual returns.

• The first online returns (for tax year 2014/2015) will be due by 6 July 2015, so companies must register plans before that date.

• HMRC is encouraging companies to register existing EMI schemes early as EMI options granted on or after 6 April 2014 will need to be notified online within 92 days of grant.

Self-certification of tax-advantaged share plans• New tax-advantaged share plans no longer require prior HMRC

approval. Instead, companies must register new tax-advantaged share plans with HMRC and confirm that: - the requirements of the relevant legislation are met in relation to the plan; and

- if the declaration is given after the time the plan is first operated, those requirements were met in relation to the first awards/option grants and have been met in relation to the plan at all times since then.

The deadline for such “self-certification” is 6 July after the end of the tax year in which the new plan is first operated.

• Existing tax-advantaged plans must be registered with HMRC and “self-certified” by 6 July 2015: - companies must self-certify that the requirements of the relevant legislation are met in relation to the plan and those requirements have been met at all times since 6 April 2014;

- there are still a number of issues to be addressed and further guidance is expected from HMRC to clarify the position with regard to self-certifying existing tax-advantaged share plans. HMRC may have approved a share plan with provisions that are not in line with the revised legislation, or HMRC’s current guidance or interpretation of the legislation. It is hoped that HMRC guidance will confirm that a company can self-certify any such plans without needing to make changes. This is helped in part by the legislation, which gives automatic effect in existing previously-approved plans to a number of legislative changes, including the automatic removal of any provision requiring HMRC’s approval or agreement (except where it is still required by the legislation); and

- HMRC has suggested a timetable for a staged approach to registration based on a company’s place in the alphabet. We expect that a large number of companies (with names beginning with A to E) falling within the first period in that timetable will wait before registering due to the uncertainties referred to above.

• Changes to “key features” and any variation of share capital affecting SAYE or CSOP plans made after 6 April 2014 must also be notified to HMRC, together with confirmation that the alteration or variation has not caused the requirements of the relevant legislation to be breached.

Brave New World – Self-certification of Tax Advantaged Employee Share Plansby Matthew Findley and Suzannah Crookes

PM-Tax | Recent Articles

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PM-Tax | Recent Articles

What other changes should I be aware of?The increases in limits for both SAYE (up to £500 per month from £250) and SIP (up to £3,600 (previously £3,000) of Free Shares and £1,800 (previously £1,500) of Partnership Shares per tax year took effect from 6 April 2014.

Other changes announced as part of the Budget are also now in force. Companies should consider the revised legislation and guidance (when it is published) to determine whether any changes to their existing plans will be required (or would be desirable). If plans were not updated to reflect changes made by Finance Act 2013, we recommend companies consider whether such changes are now appropriate so they can be adopted at the same time (later this year).

Briefly, the additional changes announced in the Budget for tax-advantaged plans include:• the introduction of a new purpose test: the purpose of the plan

must be to give employees a continuing stake in the company by providing benefits only in accordance with the relevant legislation, and must not provide participants with a cash alternative to shares. This applies to new plans and for existing plans from the date a change is made to a “key feature” of a plan on or after 6 April 2014;

• allowing a company to include provisions in its SIP requiring a SIP participant to sell partnership or dividend shares in specified circumstances for a consideration at least equal to the amount applied in acquiring the shares on behalf of the participant or, if lower, the market value of the shares at the time they are offered for sale;

• specifying the terms which must be stated when a CSOP option is granted, and notified to an optionholder as soon as practicable following grant;

• if SAYE and CSOP plans permit the exercise of options granted on or after 6 April 2014 following the optionholder’s death, fixing the exercise period at 12 months (further guidance is expected to clarify the interaction between this and certain other provisions);

• provisions allowing companies to permit tax-advantaged exercise of SAYE and CSOP options within a period of 20 days before a change of control, or 20 days after a change of control, as a result of which the company’s shares cease to meet the required conditions set out in the legislation;

• in relation to a tax-advantaged exercise of SAYE and CSOP options before the third anniversary of grant after certain specified corporate events, extending the list of events to include a shareholder-approved reorganisation of a non-UK company’s share capital. A change is also made to permit options to be rolled over in such circumstances; and

• changes to the equivalency and valuation requirements for a roll over of SAYE and CSOP options or a variation of share capital affecting SAYE and CSOP options.

ConclusionWith so much change taking place, particularly to the administration and compliance obligations in respect of tax-advantaged share plans, it is inevitable that it will take time for things to settle down. We are waiting for additional guidance to be published by HMRC (expected later this month) to be able to understand further the changes and the implications for companies and administrators of tax-advantaged plans. We expect there to be a continued dialogue with HMRC, accompanied by a series of further updates, before it is fully understood what is required. We hope this will be a collaborative process with companies, administrators, advisers and HMRC working together to ensure the best outcome.

Companies operating tax-advantaged share plans should ensure that they keep up-to-date with the legislative changes and HMRC guidance.

Matthew Findley is our Head of Share Plans and Incentives. He advises companies in relation to the design, implementation and operation of share plans and employee incentive arrangements both in the UK and internationally. Matthew’s experience extends to both executive plans and all-employee arrangements. He also has considerable experience of the corporate governance and investor relations issues associated with executive incentives and remuneration planning generally.

E: [email protected]: +44 (0)20 7490 6554

Suzannah Crookes is currently a Senior Associate in our share plans and incentives team (although she will be a Legal Director from 1 May). She advises companies on the implementation and continuing operation of employee share and incentive plans, including adopting new plans (including HMRC approved plans), managing grants and maturities under existing plans, covering international aspects where appropriate, and other technical tax and legal matters. In addition, Suzannah advises on the impact of corporate transactions both for buyers and target companies or groups, and assists companies planning towards exit by sale or IPO.

E: [email protected]: +44 (0)113 294 5233

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PM-Tax | Our CommentPM-Tax | Cases

This appeal related to late penalties charged as a result of late payment of PAYE and NICs. Bilaman’s finance director became ill and then in a later period its managing director also became ill. Bilaman said that it was a result of the two directors’ serious illnesses that PAYE and National Insurance contributions were paid late claiming that the illnesses amounted to a reasonable excuse for the late payments. Bilaman also claimed that HMRC should have used its discretion to allocate payments made by Bilaman in a way that would reduce the penalties payable.

The FTT decided that because the two directors were not so incapacitated that they could not perform their duties there was no reasonable excuse for not making PAYE and NIC payments. The FTT said that even if the directors were so incapacitated, then Bilaman should have put in place other procedures to ensure that the payments were made.

Dealing with whether the payments should have been allocated differently, Bilaman’s appeal was based on the FTT decision of Kelcey & Hall Solicitors in which the tribunal found that HMRC should have suggested a different penalty payment allocation than the one it followed. As a decision of the FTT only however, it is not binding and only has persuasive force. Also, the case had to be considered against another similar case put forward by HMRC of Chieftain Trailers. In that case, on broadly similar facts again although here the taxpayer, like Bilaman, had made a definite allocation, the FTT found that there is no obligation for HMRC to allocate monies on a more beneficial basis to the taxpayer in the face of a taxpayer’s express allocation.

The FTT decided that there was no obligation for HMRC to allocate Bilaman’s penalty payments in a more beneficial way. Overriding Bilaman’s allocation would have meant allocating payment to a future period for which PAYE was not yet due. The FTT said that HMRC could not be expected to make the assumption that Bilaman would be making a late payment for that period and HMRC could have put Bilaman in a worse position if they had allocated the payment to the later period. The appeal was dismissed.

CommentThe case confirms that illness of key individuals on its own will not constitute a reasonable excuse, where the company could have made alternative arrangements. It also confirms that taxpayers should take care in the way that they allocate payments and cannot expect HMRC to override their allocation to reduce the level of penalties.

Read the decision

Bilaman Management Services LLP v HMRC [2014] UKFTT 270 (TCC)

HMRC are not required to allocate payments in a way which reduces the penalty when a taxpayer has allocated payments to its own disadvantage.


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PM-Tax | Our CommentPM-Tax | Cases

A number of UK-based companies, which included household names like Superdrug and Savers as well as lesser-known ports and shipping companies, sought to offset losses sustained by Hutchison 3G UK Ltd which is owned by a consortium including Luxembourg-based Hutchison 3G UK Investment Sàrl. The Luxembourg company is part of the same group of companies as those claiming group relief, however HMRC rejected the application because this ‘link’ company was neither resident in the UK for tax purposes nor had a permanent establishment there.

Companies can deduct the losses of another company within the same group from their taxable profits so long as certain conditions are met. In certain cases, losses may also be transferred between a company that is a member of a consortium and another company owned by the consortium; and can be transferred between a company that is a member of a group and a company owned by a consortium where they are connected by a third, link company which is a member of both the group and the consortium. At the relevant time, UK law only allowed losses to be transferred if the company which transferred them and the company which set them against its profits were both resident in the UK or had a permanent establishment there.

The FTT referred the matter to the CJEU. The CJEU ruled that the residence requirement under UK consortium group relief rules infringed the right to freedom of establishment within the EU. it said that the residence condition introduced a “difference in treatment” between resident companies connected by a UK link company, which would have been entitled to claim relief, and resident companies connected by a link company established in another member state. That difference in treatment acted as a restriction on freedom of establishment, as it made it “less attractive in tax terms” for the link company to be established in another member state, it said.

The CJEU said it was irrelevant that the parent company and some of the other intermediary companies were not based in the EU, as the status of the companies claiming the relief was based on “the location of the corporate seat and the legal order where the company is incorporated, not on the nationality of its shareholders”.

“The fact that, in the dispute in the main proceedings, it is not the claimant companies established in the United Kingdom whose freedom of establishment may have been restricted does not affect the finding ... as to the existence of a difference in treatment between resident companies connected by a link company established in the United Kingdom and resident companies connected by a link company established in another member state,” the CJEU said.

It added that although measures restricting freedom of establishment could potentially be justified where “designed to combat wholly artificial arrangements, aimed at circumventing the legislation of the member state concerned”, this could not be argued in this case.

CommentThis is the latest in a long line of cases where UK rules have been found to be discriminatory. It will be interesting is to see what the UK court makes of the decision: will it come up with a reason why the companies should not win anyway, as they have in other cases?

Also of interest will be what the government does to rectify the rules. Since the case started, it is no longer necessary for a link company to be resident or carrying on a trade in the UK if it is in the EEA, but it does still currently have to be a 75% member of the same group of companies as the claimant company or the surrendering company without involving a company that is not in the EEA.

Read the decision

Felixstowe Dock and Railway Company Ltd and others v HMRC Case C 80/12

UK tax legislation is discriminatory because it requires companies within the same corporate group to be resident or establish a permanent establishment in the UK before they can claim tax relief based on each other’s profits and losses.


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Substance (continued)

Asda Stores Limited v HMRC [2014] EWCA Civ 317

A rebate to the importer from a supplier further down the supply chain could not be taken into account in calculating an importer’s liability to customs duty.

Asda imported clothing into the EU, together with coat hangers. It paid a clothing supplier for both the clothes and the coat hangers but the price charged to Asda for the hangers was the cost price which the clothing supplier paid to a sub-supplier. Asda agreed with the supplier of hangers that the price for the hangers was too high, and, after paying the supplier of clothes in full, received a rebate from the hanger supplier without the clothing supplier knowing. HMRC said the custom duty due from Asda in respect of the import of the clothing and the hangers, which is levied on the ‘transaction value’, should be calculated on the full amount paid to the clothing supplier. Asda said it should be that amount less the rebate from the hanger supplier.

Asda succeeded before the FTT which relied on the case of Repenning to find that the value of a transaction should be reduced in calculating customs values. This decision was overturned by the UT, which found for HMRC.

Asda’s main argument in the Court of Appeal (CA) was that the CA should adopt a purposive approach to the Community Customs Code (the Code) which defines the value of imported goods for customs duty purposes. Asda said this would give effect to the aims and objectives of the General Agreement on Tariffs and Trade by precluding the use of arbitrary or fictitious customs values. Whilst the CA did agree that it should adopt a purposive construction, it decided that doing so should not mean that the clear words of the Code could be ignored. The CA found that it was unable to find the use of the amount paid to the clothing supplier as ‘fictitious’ without strong grounds for doing so, which did not exist in Asda’s case.

Next, the CA considered whether the FTT were right to hold that the Repenning case required the value of the transaction for customs duty purposes to be reduced by the value of the rebate. In that case, the value of the transaction was reduced because the goods had been damaged by thawing during the unloading process. Vos LJ said that Repenning could be distinguished and had merely “marginal significance”. The CA applied the clear words of Article 29 of the Code, which it said provided that the ‘transaction value’ was the price payable to the clothing supplier. The CA found that the rebate was a commercial agreement outside the transaction value and neither a purposive construction of the Code nor the Repenning case could permit a reduction in the customs duty as a result of the rebate.

Asda’s third argument was that the hangers were not sold to Asda by the clothing supplier, but instead by the hanger supplier so that the rebate should be taken into account. Vos LJ said that this argument failed and rejected any notion that the term ‘seller’ could be expanded beyond its natural and unambiguous meaning, i.e. the clothing supplier.

CommentThe case illustrates that the transaction value for customs duty purposes, will, in most cases, be what is paid to your supplier.

Read the decision


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Substance (continued)

HMRC v Colaingrove Limited [2014] UKUT 01432 (TCC)

The test for whether items supplied as part of a caravan should be zero or standard rated depends on whether they are ordinary ‘building materials’, and not on how easily they can be removed or whether the caravan would still be habitable after their removal.

Colaingrove manufactures and sells caravans and this appeal before the UT related to an FTT decision in respect of what items supplied in or as part of a caravan (such as carpets, kitchen units, ovens and bedroom storage units) are zero rated for VAT purposes, and which are standard rated. Caravans themselves are zero rated for VAT purposes under Group 9, Sch. 8 VATA. However, note (a) of that group makes an exception for “removable contents” other than items which fall within Item 4 of Group 5 as “building materials”.

The FTT decided that to decide which items in a caravan are zero-rated and which are not, you have to look at how affixed an item is to the shell of the caravan and this depends on how easily it can be removed. It said that a second limb to the test was whether the caravan was still habitable after the removal of the items (and how much damage removing the items would leave). This second limb meant that in Colaingrove’s case, more items fell to be zero-rated than standard rated. HMRC appealed to the UT.

HMRC contended that the FTT’s test created uncertainty, as it depended in part on the skill of the person removing the items. HMRC said it also enabled caravan manufacturers to make it more difficult for the items to be removed, making them zero-rated. The UT agreed with HMRC and found that the FTT had erred in developing its two-fold test.

The UT said that those materials which are incorporated in a caravan as ordinary building materials are the items which should be zero-rated. This test does not take into account the habitability of the caravans or the items’ attachment to the caravan, but instead only makes the caravan together with the ordinary building materials zero-rated.

The result of this analysis meant that two of the items (carpets and ovens) changed from being zero-rated to standard-rated and kitchen work surfaces changed to being zero rated. However, there was also a dispute regarding whether some of the removable contents were fitted furniture. If an item is fitted furniture (excluding kitchen furniture), then that item is no longer within the definition of building material and is therefore standard rated. As fact finding, bar limited exceptions, is the jurisdiction of the FTT and the UT had not heard all the evidence as to the nature of the furniture, it was reluctant to overrule the FTT unless there was something amiss with how the FTT approached the question of what is fitted furniture. The UT could not see that the FTT had erred in respect of the fitted furniture. HMRC’s appeal therefore failed on this point, but was allowed in respect of changing the relevant test.

CommentThe UT has decided that the FTT’s test was wrong and has gone back to the wording of the legislation. Its test is not as favourable to Colaingrove but should allow for more certainty on what is or is not zero rated.

Read the decision


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Substance (continued)

Susan Corbett v HMRC [2014] UKFTT 298 (TC)

A contract of employment could be implied for the purposes of entrepreneurs’ relief where an individual was officially removed from the payroll shortly before a sale but carried on performing duties and was remunerated by an increase in her husband’s salary.

Mrs Corbett had claimed entrepreneurs’ relief from capital gains tax on the gain she made by selling shares in Optivite International Limited (Optivite). HMRC disallowed her claim on the basis that she did not meet one of the conditions for the relief, which was that she had been employed by Optivite for 12 months immediately prior to the sale of shares.

Mrs Corbett worked for Optivite as a clerical assistant to her husband, who was a director of the company, working from home, answering calls, faxing documents and conducting other general office work. She had a salary of £14,000 but was removed from Optivite’s payroll and received her P45 in February 2009, shortly before Optivite was sold in October 2009. Her husband had advised her that it was best that she no longer be employed for the purposes of making the share sale easier as the buying company did not approve of spouses being employed. After the sale her husband worked from the office and so Mrs Corbett’s services were no longer required.

Between February 2009 and the actual share sale, Mrs Corbett claimed that she carried on the same role as before. Mr Corbett’s salary was increased to include Mrs Corbett’s previous monthly salary and was paid into the joint bank account of Mr and Mrs Corbett.

HMRC did not accept that Mr Corbett had been remunerated for his wife’s work and even if he had been, HMRC rejected the notion that there was a contract of employment between Mrs Corbett and Optivite from February 2009 until the sale of shares in October 2009. HMRC relied on Ready Mixed Concrete to argue that without remuneration, there had been no contract.

Mrs Corbett argued that as she carried on the same work after receiving her P45, she had an implied contract of employment with Optivite for the period from February to October 2009. In relation to remuneration, Mrs Corbett pointed to HMRC’s manual which states that it is not necessary for the employee to be remunerated and also argued that because Mr Corbett’s increased pay was paid into a joint account, she had still received consideration.

The FTT found that, on the balance of probabilities Mrs Corbett was an employee of Optivite for the 12 months prior to the share sale. It found as fact that sole motivation for removing Mrs Corbett from the payroll was to keep her out of sight of the potential purchaser and that, despite the lack of transparency in doing so, Mrs Corbett was still remunerated by Optivite directing her salary to Mr Corbett. As such, Mrs Corbett was still an employee for the 12 months prior to the sale of shares and entitled to entrepreneurs’ relief.

CommentMrs Corbett was lucky that the FTT decided in her favour. The case shows the dangers of forgetting about entrepreneurs’ relief when restructuring a company prior to a sale.

Read the decision


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Substance (continued)

Astral Marine Services Limited v HMRC [2014] UKFTT 269 (TC)

Casino licences and licences to operate gaming machines on ships constituted separate supplies in relation to each ship and the operator of casinos had a fixed establishment on each ship on which it operated.

Astral entered into a licence agreement with P&O Ferries to operate casinos and gaming machines on some of P&O’s ships. Astral said the licence to site and operate casinos amounted to a separate distinct supply from the licence to operate gaming machines and that even if there was one supply of operating casinos and gaming machines, there was a separate supply in relation to each separate ship. HMRC argued there was a single supply in relation to gambling provision for all the ships covered by the agreement.

The FTT decided that the gaming machine licence and the casino licence constituted two separate supplies. The next factor was whether those agreements apply to all routes or on a per route basis and the FTT was swayed by the fact that when one route closed, the licence continued to operate on the others. It found that there was not a global supply across all the routes but on a per route basis. This then posed a further question of whether the supplies were not only on a per route basis, but on a per ship basis. The FTT asked, as there was nothing which indicated a per route basis of supply on the facts alone, whether the supplies per ship were so closely linked that it would be artificial to split them and found again in favour of Astral that the supplies were on a per ship basis.

Astral also argued that it had ‘fixed establishments’ on each individual ship. This meant that on internationally bound ships, once the ships left UK territorial waters, the supplies would be outside the scope of VAT. HMRC said that ships, being movable, cannot be treated as “fixed” and that the presence of croupiers, casino equipment and gambling machines on board the ship was insufficient to amount to the ship being a “fixed establishment”.

The first issue for the FTT to decide was whether a ship is capable of being a fixed establishment in the first place. HMRC had argued that this was not possible given that a ship was itself a moving object but the logic of this argument did not hold weight against the ECJ decisions of Berkholz and Faaborg in which it was clear that the ECJ considered it possible for a ship to be a fixed establishment.

The test for fixed establishment is threefold, requiring a certain minimum size; a degree of performance; and a suitability of human and technological resources. The FTT applied the facts relevant to the ships in determining the test first for the licence to operate a casino finding that the manned designated casino area was

sufficient in size to satisfy all three limbs of the test for a fixed establishment. In this regard, one particular area of contention was the significance of the fact that the croupiers were not actually employed by Astral in order to meet the third criteria of the test for a suitable level of human resource on board the ships. The FTT however found that it is not necessary that the croupiers be employees of Astral and the fact that they are not cannot mean that they are ignored. The FTT was clear however, that the fixed establishment was not the ship, but instead the designated casino area on board the ship.

In determining the separate gaming machines licence the issue was less clear and it was a matter of looking at whether there were enough gaming machine staff on board the ship to meet the required human resource needed for a fixed establishment. The difficulty was that the croupiers only cleaned the machines but it was the land based staff who collected money from the machines, although they were supervised by the croupiers. In addition, the gaming machines, unlike the casino area, were spread throughout the ships rather than in a designated area. In light of these facts the tribunal determined that there was not a fixed establishment for the purposes of operating the gaming machines. Nor too, the FTT found, could the casino and gaming machines be considered together to create one fixed establishment across the whole of the ship. The FTT therefore found that there was a fixed place of supply for the operation of casinos, and on board each individual ship, but not when it came to gaming machines.

CommentAstral asked the FTT to give a decision in principle on whether there were single or multiple supplies and on the fixed establishment point. The FTT therefore did not consider to what extent the supplies should be treated as made inside or outside the UK – so the parties will need to agree this (assuming HMRC do not appeal the decision). The FTT decided that the casino area was the fixed establishment – rather than the ship itself. This aspect of the decision gives rise to an issue over how that supply is to be apportioned in terms of place of supply. It is therefore likely that we will not have heard the end of this case.

Read the decision

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PM-Tax | Wednesday 2 April 2014

PM-Tax | Events

Oxford University Centre for Business Taxation – Tax risk management: new approaches to tax compliance

Jason Collins of Pinsent Masons will be speaking at Oxford University Centre for Business Taxation’s conference on tax risk management. Other speakers include Professor Judith Freedman CBE, Pinsent Masons Professor of Tax Law at Oxford University and Professor Mike Devereux of Oxford University.

Globalisation, fiscal pressures and the complexity of the tax system present new challenges to revenue authorities and taxpayers in securing compliance with tax laws to collect the full amount due (but no more than is due).

Speakers at this conference will discuss the sometimes difficult balancing act that is required between efficient resource allocation, equality of treatment, certainty and the rule of law in relation to managing tax risk.

Date: Thursday, 15 May 2014 from 13:00 to 18:30 Place: London, United KingdomMore details and to register

Taxation awards

We are delighted to announce that we have been shortlisted for VAT team of the year in the Taxation Awards 2014. In addition, Heather Self, a regular contributor to PM-Tax, has also been shortlisted for Tax writer of the year.

The winners will be announced on the night of Thursday 22nd May at The London Hilton on Park Lane.

For more details of the event see www.taxationawards.co.uk.


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PM-Tax | Wednesday 16 April 2014

PM-Tax | Our CommentPM-Tax | People

Interview with Suzannah Crookes of our Share Plans and Incentives team

As mentioned in last week’s PM-Tax, we are very pleased to announce that Suzannah Crookes is to become a Legal Director in our share plans and incentives team from 1 May. Suzannah has worked within our tax group since qualification, initially within the transactional and advisory team. After taking some time out to experience full-time motherhood, she returned to Pinsent Masons in 2009 to specialise in share plans and incentives.

What are the main “hot topics” affecting share plans and incentives?Following the introduction of the new regime for executive pay from 1 October 2013, many of our UK listed company clients have been preparing their directors’ remuneration reports for the first time in accordance with the new rules, and those with December year ends are now approaching the first annual general meeting at which a binding shareholder vote on remuneration policy has to be sought.

This has been a busy time for those involved and their advisers, seeking to achieve a balance between the requirements of the new legislation and recommended approach as set out in the GC100 guidance, the approach of key investors and the company’s commercial aims.

At the same time, companies (including overseas companies) operating HMRC tax-advantaged share plans for UK employees, such as the widely-implemented “all-employee” sharesave and share incentive plans, have been getting to grips with various legislative changes which have been made following recommendations made by the Office of Tax Simplification. Some of the key changes will improve the tax position for participants in tax-advantaged plans in certain specific circumstances and are generally to be welcomed – but there is nevertheless a bit of additional work to do during the transitional period to align documentation and processes with the amended legislation.

The really good news for “all-employee” plans though is the raising of the financial limits for participation, which make these types of arrangement more flexible and those companies which are able to offer the increased limits can offer potentially greater benefits to the workforce.

In addition, companies are now facing a new process for “self-certification” of tax-advantaged plans, and online registration and filings for all employee share plans in the UK. See the article on page 11 of this edition of PM-Tax for further details.

Unlisted companies are also seeing a wealth of change coming through, with a number of Government initiatives, including increased scope to adopt HMRC tax-advantaged share plans, specific tax reliefs for certain “employee-owned” companies, and the new employee shareholder status.

So much change must present quite a challenge for the team!We have a large and growing team of incentives specialists within Pinsent Masons in the UK and overseas, and individuals have a variety of backgrounds including working with remuneration consultants, in the transactional and advisory tax team and focussing on international share plans. As well as the core specialist team, we work closely with colleagues elsewhere in the firm, including in the wider tax team, the corporate and employment groups and members of our forensic accounting team can also assist in advising on certain accounting and valuation issues. So we are well-placed to support our clients on a wide range of issues and enjoy rising to each new challenge.


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PM-Tax | People

Are you seeing an increase in companies operating share plans overseas?Yes, very much so. Many companies operating, even on a small scale, in more than one jurisdiction are keen to offer equivalent remuneration packages across all locations, and see the value of share awards both in recruitment, retention and incentivisation of senior management, and in building loyalty amongst a wider international workforce. We can provide a service tailored to a company’s particular requirements – whether it is a one-off query on the UK tax position for an internationally mobile executive (incidentally, another area of change with a new tax regime expected in force from April next year...) or co-ordinating legal and tax advice on the operation of a company’s share plans in multiple jurisdictions.

What do you enjoy about your role?With a broad range of clients, including FTSE and AIM-listed companies, multi-national groups, private-equity backed and owner-managed businesses, the context for delivering advice is ever-changing. The tax, legal and technical points need to be addressed, and that provides a framework for presenting advice, but often the most rewarding element can be to fit this together with a client’s commercial objectives and practicalities for implementation.

PM-Tax | Wednesday 16 April 2014

This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority and the appropriate regulatory body in the other jurisdictions in which it operates. The word ‘partner’, used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the

LLP or any affiliated firm of equivalent standing. A list of the members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP’s registered office: 30 Crown Place, London EC2A 4ES, United Kingdom. We use ‘Pinsent Masons’ to refer to Pinsent Masons LLP, its subsidiaries and any affiliates which it or its partners operate as separate

businesses for regulatory or other reasons. Reference to ‘Pinsent Masons’ is to Pinsent Masons LLP and/or one or more of those subsidiaries or affiliates as the context requires. © Pinsent Masons LLP 2014.

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Suzannah CrookesT: +44(0)113 294 5233E: [email protected]

Interview with Suzannah Crookes (continued)

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