On 13 June 2023 the UK government published the Tax Information and Impact Notes for government amendments at the report stage of the Spring Finance Bill 2023. The Bill includes the following measures:
Multinational Top-up tax: UK adoption of Pillar Two
A top-up tax will be charged on UK parent members within a multinational enterprise group when a subsidiary is located in a non-UK jurisdiction and the group’s profits in that jurisdiction are subject to tax below the minimum rate of 15%. The legislation is in line with the OECD agreement of 8 October 2021 on the two-pillar international tax proposals. The rules will take effect for multinational enterprise groups with fiscal years beginning on or after 31 December 2023.
Reform of research and development expenditure relief
For accounting periods beginning on or after 1 April 2023 the government is extending the scope of qualifying expenditures to include the costs of datasets and of cloud computing. Also, the definition of R&D for the tax reliefs will be amended to remove the exclusion of pure mathematics.
Relief for subcontracted work and the cost of externally provided workers will be limited to UK activity. There will be some restricted exemptions where certain conditions that are not present in the UK are required for the research (for example, deep ocean research).
All claims to the R&D reliefs will in future have to be made digitally, except from companies that are exempt from the requirement to submit a company tax return online. The digital claims will need to break down the costs between qualifying categories and briefly describe the R&D. The claim must be endorsed by a named senior officer of the company. Companies will need to inform HMRC in advance that they plan to make a claim, within six months of the end of the period to which the claim relates, and claims must include details of any agent who has advised the company on compiling the claim.
Transfer Pricing Documentation
Although the UK has implemented the Country-by-Country reporting minimum standard under BEPS action 13 it has not previously introduced a requirement for a master file and local file because the UK already had broad record keeping requirements. As this has created some uncertainty for UK businesses as to the appropriate transfer pricing documentation to keep, the UK is now implementing the the master file and local file requirement. UK businesses must already keep sufficient records to demonstrate that their tax returns are complete and accurate, including the transfer pricing information, but the required format is now being included in the legislation.
The “summary audit trail” (SAT) requirement is also being introduced. Businesses must complete a questionnaire setting out the main actions they have taken in the course of preparing the transfer pricing local file document.
This measure will apply to businesses with accounting periods commencing on or after 1 April 2023.
Corporate interest restriction rules – proposed revisions
Legislation is being introduced to ensure that groups can carry forward interest allowance where a new holding company is inserted in the group during an accounting period; to clarify the position that notional untaxed interest income is not included in tax-EBITDA where a group has claimed double tax relief; and to ensure that brought forward income tax losses of a non-resident corporate landlord that is now subject to corporation tax do not reduce tax-EBITDA. Various other amendments are being made to tighten the operation of the interest restriction rules.
Assignments of income tax repayments
Measures are being introduced to remove a taxpayer’s ability to legally assign to a third party (such as an agent) their income tax repayment, or their right to an income tax repayment. This applies to individuals entitled to income tax repayments from HMRC who use a business, accountancy firm or agent to facilitate their access to a repayment and aims to protect the taxpayer.
