In the case of royalty witholding tax, income tax will be deducted at source from royalties paid to certain non-resident persons from 17 March 2016.
A key stated aim of this measure is to crack down on the abuse of double taxation agreements by multinational companies.
The circumstances where this is applicable include arrangements that have been entered into which exploit the UK’s double taxation agreements in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world.
Andrew Watters, senior tax partner at Thomas Eggar, said: “The chancellor has effectively declared war on international tax avoidance. The weapons include restrictions on royalty payments, interest payments and use of losses. This means it will be harder to pay royalties or interest to group companies outside the UK to reduce taxable UK profits. It will be harder to set losses against profits and harder to avoid a UK footprint when doing business in the UK.”
Another document released today by HM Revenue & Customs is aimed at tackling disguised remuneration avoidance schemes.
The measure prevents attempts to exploit the disguised remuneration legislation by inserting an additional targeted anti-avoidance rule (TAAR) with effect from 16 March 2016.
In addition, under another new rule, for firms making profits over £5m, the ability to use past losses to offset profits will be capped at 50%, with further rules to limit the ability of multi-national companies to borrow in the UK to fund activities abroad.
Richard Morley, partner, tax dispute resolution, at BDO, said: “As expected, the chancellor continued his tirade around tackling tax evasion and avoidance.
“The additional measures to crack down on this issue, which he predicts will raise £12bn by 2020, include: shutting down of disguised remuneration schemes which often involve individuals being paid in loans through structures such as offshore employee benefit trusts; a consultation on how to target compliance within the hidden economy; ensuring UK tax is paid on UK property development by overseas companies to include the setting up of a dedicated HMRC task force.”
