UK Law and Practice Contributed by: Russell Warren and Michael Langan, King & Spalding LLP
accounting periods starting on or after 31 December 2023. 4.4 Specific Features or Deviations of Pillar Two The UK’s implementation of the global minimum tax has broadly followed the OECD model. The UK has, however, developed its own separate body of tax law (Multinational Top-up Tax (MTT)) to implement the (Global Anti-Base Erosion) GloBE rules, focusing on achieving the same results as the OECD rules without being a direct word-for-word copy. The main difference between the OECD and UK model rules lies in the UK’s MTT, which operates by way of an Income Inclusion Rule and a domestic top-up tax (DTT). The DTT extends the scope of Pillar Two rules to UK operations. The UK’s MTT qualifies, nonethe - less, as a Qualified Domestic Minimum Tax for the purposes of the OECD model. 4.5 Digital Services Tax The UK introduced a DST from April 2020, apply - ing a 2% tax on UK revenues of certain digital busi - nesses with significant UK user participation above a certain threshold for both global and UK revenue. DST remains until Pillar One Amount A takes effect, at which point, the UK intends to transition away from DST. 5. Anti-Avoidance and Anti-Evasion Measures 5.1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes Tax fraud is regarded as the deliberate deception of HMRC. Tax evasion is a narrower offence of deliberately not paying the right amount of tax. Tax avoidance is a concept that has evolved through case law and is now generally considered to be the use of legal means to reduce a tax liability. A hallmark of avoidance is the reliance on an artificial interpreta -
tion of the legislation which does not reflect parlia - ment’s intention and which does not adopt a realistic view of the facts in question. For VAT purposes, avoidance adopts an abuse-of- rights principle based on EU case law principles. Under this principle, a transaction is abusive if it aims to achieve an advantage from the VAT rules that is contrary to the purpose of those rules. This principle has been retained post-Brexit in the Taxation (Cross- border Trade) Act 2018. 5.2 Anti-Avoidance Mechanisms The UK has a robust system of anti-avoidance and anti-evasion legislation. These fall into one of three broad categories: • disclosure rules designed to inform HMRC about tax arrangements in real time; • powers to enable HMRC to investigate and recover unpaid tax; and • sanctioning of advisers who promote these arrangements. The Disclosure of Tax Avoidance Rules and Disclosure of Avoidance Schemes – VAT and other Indirect Taxes, provide an early-warning system for HMRC of emerg - ing avoidance schemes. Taxpayers are obliged to inform HMRC about transactions which bear certain “hallmarks”. These include wishing to keep aspects of the arrangements confidential from HMRC, or pro - moters of the arrangements charging a premium fee attributable to the tax advantage obtained. The Mandatory Disclosure Rules require promot - ers and advisers to inform HMRC of arrangements involving opaque offshore structures or if a structure circumvents reporting under the Common Reporting Standard. These rules replaced the DAC 6 cross-bor - der disclosure rules. HMRC is empowered to serve notices to seek informa - tion from taxpayers and third parties. These include: • a taxpayer notice requiring information or docu - mentation relevant to the taxpayer’s tax position; • a third-party notice requiring information or docu - mentation relevant to a taxpayer’s tax position;
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