26 06 2019

UK Tables Regulations For Offshore Intangibles Measure

The UK Government has published for consultation draft regulations for the "Offshore receipts in respect of intangible property measure," added to UK law via Schedule 3 to the Finance Act 2019.

The new consultation is technical in nature, on amendments to the ORIP legislation following a consultation on the provisions, which has newly closed.

The offshore receipts in respect of intangible property measure brings within the charge to UK income tax amounts received in a low-tax jurisdiction in respect of intangible property to the extent that the amounts are referable to the sale of goods or services in the UK.

The measure applies to income receivable from both related and unrelated parties and is effective from April 6, 2019.

For example, where a non-UK entity receives income from the sale of goods or services in the UK, and that entity makes a payment to the holder of intangible property in a low-tax jurisdiction, a charge arises under the measure to the extent that the income receivable in the low-tax jurisdiction is referable to the sale of goods or services in the UK.

As confirmed by the UK's Chancellor, in response to a question from a member of parliament, "the measure will be applied in compliance with the UK's international obligations. This means that the measure will only apply to low-tax jurisdictions with which the UK does not have a full tax treaty." In the legislation, a full tax treaty is a treaty including provisions for the avoidance of double taxation and also a non-discrimination provision.

The measure includes a Targeted Anti-Abuse Rule, effective from October 29, 2018, which is intended to protect against arrangements designed to avoid the charge, including arrangements which involve transferring the ownership of intangible property to another group entity resident in a full treaty jurisdiction.

By taxing the proportion of that income which is referable to the sale of goods or services in the UK, this measure is intended to reduce the opportunities for large multinationals to gain an unfair competitive advantage by holding their intangible property in low-tax offshore jurisdictions, leveling the playing field for businesses operating in UK markets.

There are a number of other exclusions in the legislation, including where the tax paid is at least half what would be due if the amount was taxable in the UK. There is also a GBP10m (USD12.9m) de minimis UK sales threshold.

The measure also includes an exemption for income arising in entities that have not acquired their intangible property from related parties and where all, or substantially all, of the trading activities have always been undertaken in the low-tax jurisdiction.

The legislation makes provision to relieve double taxation by introducing an exemption for instances in which more than one tax charge under the measure applies to the same income in respect of related entities. For example, a royalty might flow through multiple group companies from sub-licences of the same underlying intangible property. If these group companies are based in jurisdictions that the measure applies to, they might all be subject to a charge under the measure. This exemption ensures that where there are multiples charges on group companies from the same income flow, the tax is only charged once.