UK Consults The Public On Tax Avoidance Involving Profit Fragmentation

; posted on
April 12th, 2018

On April 10, 2018, the Her Majesty's Revenue and Customs (HMRC) opens a public consultation on an anti-avoidance legislation draft, which tackles tax avoidance by moving UK profits outside the charge of UK tax with offshore trusts and companies. The new legislation is expected to enact in April 2019.

Fragemented and Hidden Profits

The legislation intends to bring the fragmented and hidden profits within the UK tax charge and require notification of the arrangements to HMRC and earlier payment of tax with two proposals: the legislation specifically focused on these arrangements requiring profits which have been alienated to be added to UK profits (Proposal 1), and requirements to notify schemes and for faster payment of tax in dispute (Proposal 2).

The first proposal targets arrangements in case:

  • there are profits attributable to the professional or trading skills of an individual (A) resident in the UK, whether A is trading as an individual or a partner, or conducting business through a company;
  • some or all of those profits (“alienated profits”) end up in an entity Z which results in significantly less tax being paid on them than would have been paid had they arisen to A. An “entity” for these purposes would be interpreted widely, and would include a company, partnership or trust, whether or not having legal personality; and
  • A, or a connected person, or someone acting together with A or the connected person, is able to enjoy economic benefits from the alienated profits.

The second proposal introduces a notification of schemes and payment of tax, imposing duty to notify these arrangements on taxpayers if the situation is potentially within the charge.

Response to the Consultation

The legislation aims to target taxpayers, advisers and representative bodies with an interest in trading and professional activities carried on partly in the UK and partly overseas, where UK profits are shifted to other entities resulting in lower UK tax. Responses to the consultation can be done by post or online by June 8, 2018.

Source: UK Gov

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