Following a consultation carried out earlier this year, the government announced in the Budget that it intends to reform the corporate intangibles regime, including taxing property realised in low-tax regimes
The consultation in Spring 2018 looked at how ‘tax treatment of acquired intangible assets could be made more competitive and administrable’ in the UK. Finance Bill 2018-19 will include targeted relief for the cost of goodwill, the amount paid for an organisation that lies outwith the fair value of its individual assets and liabilities. The government defines such assets as including ‘patents, brands, and licences to data, expertise and organisational know-how’. From April 2019, relief will be made available to those acquiring businesses with eligible intellectual property.
The government intends to reform the de-grouping charge rules, which apply when a group sells a company that owns intangibles, ‘so that they more closely align with the equivalent rules elsewhere in the tax code’. The government will publish a tax information and impact note (TIIN) on 7 November 2018.
Finance Bill 2018-19 will also introduce legislation to tax income from intangible property held in low-tax jurisdictions to the extent that it is referable to UK sales. The tax will be collected by ‘directly taxing offshore entities that realise intangible property income in low-tax jurisdictions, rather than through applying a withholding tax’. Income that will be added to the measure includes embedded royalties and ‘income from the indirect exploitation of intangible property in the UK market through unrelated parties’.
This legislation will have a UK sales threshold of £10m under a ‘de minimis’ provision, an exemption for income that is taxed at appropriate levels, and an exemption ‘for income relating to intangible property that is supported by sufficient local substance’. It will come into effect from 6 April 2019, with an anti-avoidance rule that applies from 29 October 2018.
This measure is expected to bring in £480m over this parliament.
Report by James Bunney