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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
Slide 3 June 2013 AFM Tax Training Day 2013
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
Slide 4 June 2013 AFM Tax Training Day 2013
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.)
Slide 5 June 2013 AFM Tax Training Day 2013
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
Slide 6 June 2013 AFM Tax Training Day 2013
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
Slide 7 June 2013 AFM Tax Training Day 2013
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
Slide 8 June 2013 AFM Tax Training Day 2013
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
Slide 9 June 2013 AFM Tax Training Day 2013
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
Slide 10 June 2013 AFM Tax Training Day 2013
PwC
R&D “above the line” credits
Slide 11 June 2013 AFM Tax Training Day 2013
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...
Slide 12 June 2013 AFM Tax Training Day 2013
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
Slide 13 June 2013 AFM Tax Training Day 2013
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)
Slide 14 June 2013 AFM Tax Training Day 2013
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
‘’’
Slide 15 June 2013 AFM Tax Training Day 2013
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.
Slide 16 June 2013 AFM Tax Training Day 2013
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
Slide 17 June 2013 AFM Tax Training Day 2013
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
Slide 18 June 2013 AFM Tax Training Day 2013
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
Slide 19 June 2013 AFM Tax Training Day 2013
PwC
General anti-abuse rule
A quick overview
Slide 20 June 2013 AFM Tax Training Day 2013
PwC
General anti-abuse rule
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
Slide 21 June 2013 AFM Tax Training Day 2013
PwC
General anti-abuse rule
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
Slide 22 June 2013 AFM Tax Training Day 2013
PwC
Corporation tax losses
A small portfolio
Slide 23 June 2013 AFM Tax Training Day 2013
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
Slide 24 June 2013 AFM Tax Training Day 2013
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
Slide 25 June 2013 AFM Tax Training Day 2013
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?
Slide 26 June 2013 AFM Tax Training Day 2013
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”
Slide 27 June 2013 AFM Tax Training Day 2013
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
Slide 28 June 2013 AFM Tax Training Day 2013
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 philip.lewis@uk.pwc.com
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?
VAT - Retail Distribution Review
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
VAT - Retail Distribution Review
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
VAT - Retail Distribution Review
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
VAT - Funds Management
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
VAT - Funds Management
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
VAT - Funds Management
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)
VAT - Funds Management
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
VAT - Funds Management
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
Europe Insurance Premium Taxes
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
Europe Insurance Premium Taxes
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
56 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.
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
57 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.
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)
58 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.
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
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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
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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
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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
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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
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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)
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Chargeable events reporting Penalties
Failure to issue CEC- £300 Error in CEC- £3,000
65 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.
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
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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?
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Pensions Overview of taxation
Contributions (tax relievable)
Exempt during the life (NBLTB)
Taxed on exit
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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
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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%
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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
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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%)
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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)
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Carol Newham
KPMG LLP (UK) Tel: +44 (0)11 7905 4627 carol.newham@kpmg.co.uk
Contact details
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Foreign Account Tax Compliance Act Association of Financial Mutuals
3 June 2013
Tim Lightfoot
Deloitte UK screen 4:3 (19.05 cm x 25.40 cm)
© 2013 Deloitte LLP. All rights reserved.
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
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FATCA – The big picture
85
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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
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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
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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
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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
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FATCA for UK insurers
90
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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”)
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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?
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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)
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Financial Institutions
94
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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)
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We are a Financial Institution – what next?
96
Achieving compliance
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
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Identify Financial Accounts
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
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• 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
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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
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© 2013 Deloitte LLP. All rights reserved.
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
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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
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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
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Future developments
103
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© 2013 Deloitte LLP. All rights reserved.
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
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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 tdlightfoot@deloitte.co.uk
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© 2013 Deloitte LLP. All rights reserved.
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
Slide 109 May 2013 EU FTT Seminar
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
Slide 111 May 2013 EU FTT Seminar
PwC
The EU FTT directive – The charge to tax
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
Slide 112 May 2013 EU FTT Seminar
PwC
The EU FTT directive – The charge to tax
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
Slide 113 May 2013 EU FTT Seminar
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
Slide 114 May 2013 EU FTT Seminar
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
Slide 115 May 2013 EU FTT Seminar
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
Slide 116 May 2013 EU FTT Seminar
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
* *
* EU FTT charged at 0.1%
Sale
Slide 117 May 2013 EU FTT Seminar
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
Slide 118 May 2013 EU FTT Seminar
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.
Slide 120 May 2013 EU FTT Seminar
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
Slide 121 May 2013 EU FTT Seminar
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
Slide 122 May 2013 EU FTT Seminar
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?
Slide 124 May 2013 EU FTT Seminar
PwC
2) Technical
Branches
What are the main technical
issues and uncertainties?
Branches – lots of uncertainties
Slide 125 May 2013 EU FTT Seminar
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
Slide 126 May 2013 EU FTT Seminar
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
Slide 127 May 2013 EU FTT Seminar
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
+
* EU FTT charged at 0.1%
Slide 128 May 2013 EU FTT Seminar
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?
Slide 129 May 2013 EU FTT Seminar
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
Slide 130 May 2013 EU FTT Seminar
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
Slide 131 May 2013 EU FTT Seminar
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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 LBS-ken.thomson@hmrc.gsi.gov.uk
• Paul Boyle LBS-paul.boyle@hmrc.gsi.gov.uk
• Tina Jacob CTIAA-christina.jacob@hmrc.gsi.gov.uk
• Anthony Fawcett CTIAA – anthony.c.fawcett@hmrc.gsi.gov.uk
• Andy Stewardson CTIAA- andy.stewardson@hmrc.gsi.gov.uk
• David Moran CTIAA– david.moran@hmrc.gsi.gov.uk
• Darryl Wall CTIAA – darryl.wall@hmrc.gov.uk
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
Commercial Allocation
• 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
Commercial Allocation
• 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?
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