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International Tax MattersFor SMEsStuart Rogers

AgendaBackground & Context First Steps AbroadInternational Tax ChecklistQ&A

International Tax For SMEs September 2011 Abbreviated

Current State of PlayGlobal recession – tax revenues downG20 April 2009 – increasing focus on taxOECD expanding their roleProliferation of TIEAs (tax information exchange agreements)Headline tax rates politically sensitiveNet result = tax compliance is becoming tighter

Tighter Compliance – Common IssuesStricter application of permanent establishment rulesCloser monitoring and audit of cross border movement of staffTransfer pricing / thin capitalisation continues as an issueShare transactions between non residents now being attacked

ExamplesVodafone (UK) purchased shares in Hutchison Whampoa (a Hong Kong entity) from a third party. HW held underlying Indian trading assets and so the Indian tax authorities argued withholding tax was due and have pursued Vodafone for CGT of £1.6bn (c.US$2.6bn)UBS’ ongoing fight with the IRS was a prelude to the 2011 UK – Switzerland withholding tax agreement. The IRS owed UBS a large tax refund but refused to pay it unless UBS shared bank account information

Major Legislative Change in UK

First Steps AbroadAre you trading ‘in’ or trading ‘with’ a foreign jurisdiction ?

First Steps AbroadPayroll obligations Permanent establishment VAT obligation Personal tax residency issues

Payroll ObligationsWhere are the employment duties ?Are they temporary or long term ?Is there a double tax treaty in place ?The sting in the tail – social security rates

Permanent EstablishmentFixed place of businessNeed not be your own premisesOECD commentary – 6 monthsDependent agencies

VAT ObligationsPlace of business establishmentDistance trading regulations (retail) Place of supply principlesVAT equivalents – sales tax, GST etc

Personal Tax ObligationsCeasing to be UK resident ?Becoming tax resident abroad ? Tax equalisation Who is responsible

Checklist – DTCsDTC = double tax convention / treatyUK has over 100 DTCs in forceSome jurisdictions do not enter in to full DTCsNo DTC = tax issues

Checklist – Withholding TaxesResponsibility of the payorOften driven by DTC provisions, or EU law Reduced rates availableCreditable against domestic tax liability

Checklist - ResidencyCompanies are generally tax resident where :They are incorporated orb) They are managedDTT usuallly provides a tiebreaker – jurisdiction of mgt wins

Checklist – Dividends Received 1 July 2009 – foreign dividends received exempt‘Small’ companies have additional requirement Payor’s jurisdiction must be a jurisdiction with which UK has a full DTC

Checklist - Transfer PricingThe act of moving group profits from a high tax jurisdiction to a low tax jurisdiction using various mechanisms such as management chargesSME exemption – unless counterparty jurisdiction is one with which the UK does not have a full DTC

Checklist - Foreign Branch ExemptionPressure from banking industry SMEs need DTC in overseas jurisdiction Anti profit diversion test Other wrinkles for SMEs

Checklist - CFCsControlled Foreign Companies regime Applies where foreign company controlled by UK companies, and foreign tax is lowApportions unremitted profit to UK companyChanging regime - 2012

Checklist – R&D plus Patent BoxR&D tax credits changing – current consultationPatent Box from 2013 - gradual transition 10% tax rate on qualifying profit - formula to determine qualifying profitFuture widening of box content?

Checklist – Interest DeductionsFormerly, accrued interest on loans from non residents – only deductible when paid From 2009 accrued interest is deductible...... ........as long as counter party jurisdiction has a full DTC with the UK

Checklist – ToAA and s.13ToAA = transfer of assets abroadWhere assets held offshore if tax planning motive, HMRC can apportion offshore income to individualS.13 essentially the same but for gains – however no motive test, treatment is automatic

Checklist – Business TravelStealth workers - Do you know where your staff are and for how long ? PE ? Is there a DTC in play ? NICs – Form E101 – A1Travel & subsistence – all allowable ?

A local team with the right mix of experienceStuart Rogers Corporate Tax consultantA Chartered Tax Adviser and a commerce graduate from The University of Birmingham, Stuart is a tax consultant who specialises in international tax matters and advising complex corporate entities.Stuart trained with KPMG in London and Bristol, passing the ATT and CTA examinations and gaining invaluable experience with large foreign owned subsidiaries and listed businesses. In 2002 he joined a specialist tax firm in Bath as a corporate tax consultant and developed a senior advisory role across the South of England, latterly based in the firm’s London offices. He was involved in a wide spectrum of work, ranging from advising start ups and niche businesses, through to leading complex projects for clients such as Mulberry Group Plc and Crabtree & Evelyn Group.In May 2011 Stuart joined FC as a tax consultant specialising in corporate and international tax matters, based in Salisbury but with a cross-group brief.�� He also has experience in complex leasing tax matters, share schemes and employment related securities, due diligence and vendor tax planning, de-mergers and corporate reconstructions, capital allowances, R&D tax claims, VAT and other general owner managed business issuesTel – 0044 7330 220138 Email – sar@francisclark.co.uk

Francis Clark is the largest independent firm of business advisers and chartered accountants in the South West. We are larger than the regional offices of the “Big 4” and considerably larger than any other independent firm operating in the South West.In the Accountants’ national league table Francis Clark is ranked 29th largest firm in the UK. (Source: Accountancy Top 50 UK Firms 2011, ranked by fee income).We have over 250 staff and 38 partners across 6 offices, whose continued achievements are fuelled by their dedication, knowledge and enthusiasm. We have offices in Exeter, Torquay, Plymouth, Tavistock, Salisbury and Taunton. We are about to expand into Cornwall, merging with Winter Rule, which will give us a further 7 partners and 100 staff. This means we are large enough to provide genuine in-house specialists with industry sector and technical expertise but also small enough to provide a high level of individual client care. This combination enables us to offer real added value service to our clients.Francis Clark was awarded the UK’s Best General Tax Practice accolade in the prestigious 2009 LexisNexis Taxation Awards.In the last month we have also been voted Auditor of the Year for mid-tier firms in the FDs' Excellence Awards 2011. The results were determined by an independent annual satisfaction survey, which was completed by 1,000 finance directors and finance decision-makers. We were nominated by our audit clients, without us even knowing about it.We have a team of tax experts unparalleled in the South West and over 300 accountancy firms nationwide use us to advise on complex tax issues for their own clients.Francis Clark is a member of ‘The Leading Edge Alliance’ – a professional association of the world’s leading independently-owned accountancy practices, covering 90 countries, 430 offices and 145 firms. This enables us to link into a network of like minded firms and support those clients with overseas operations.

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International Tax For SMEs September 2011 Abbreviated

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International Tax For SMEs September 2011 Abbreviated