Weekly Tax Update - Monday 17 October 2011

1. Private Clients

   1.1. Child Trust Fund Changes

   Regulations have been laid to bring forward the expiry date of Child Trust Fund vouchers from 12 months to 60 days (for vouchers issued on or after 1 January 2012) and increase the annual subscription limit from £1,200 to £3,600 with effect from 1 November 2011.

   The £3,600 corresponds with the annual subscription limit for Junior ISAs available from 1 November 2011 for those who do not have a Child Trust Fund.

   www.legislation.gov.uk/uksi/2011/2447/contents/made

2. Business tax

   2.1. Entitlement to corporation tax loss relief on a change of ownership

   This case concerned the taking over of a UK business by a Swiss company (Mindpearl AG) and entitlement to use brought forward losses of the trade taken over. The case was argued that EU treaty article 43 (restrictions on the freedom of establishment of nationals in another member state, now article 49 of the 2010 consolidated treaty on the functioning of the EU) applied, so that there should be equality between the provisions in ICTA s343 (now CTA10 s941) and ICTA s768 (now CTA10 s673) so that entitlement to loss relief on a change of ownership should be equal whether taking over shares in a company (where there is a 50% continuous ownership requirement) or taking over the activities of a business (where there is a 75% continuous ownership requirement).

   Mindpearl AG (a 100% subsidiary of Swissair AG) took over the business of a German company operating a call centre for an alliance of airlines. The German company was owned to the extent of 40% by Swissair, 20% by Sabena, 20% by AOM Minerve SA ("AOM") and 20% by Transportes Aereos Portugueses SA ("TAP"). Swissair also owned 49.5% of Sabena and 49% of AOM, so its effective interest in the German company was 59.7%. The Tribunal concluded EU treaty article 43 did not apply as the claimant was a Swiss company and therefore dismissed the appeal. They also concluded that, as the rules on availability of brought forward losses on a change of ownership (whether through change of ownership of a business or a company) applied equally to companies whether they were UK or non UK based, this was not discriminatory and they found the difference between the treatment of companies and businesses (with respect to the 75% and 50% ownership requirements) difficult to regard as discriminatory.

   www.bailii.org/uk/cases/UKFTT/TC/2011/TC01400.html

   2.2. EU Taxation Commissioner Semeta speech

   In a speech on 11 October EU Commissioner Semeta discussed the European Commission's tax policy and main projects, commenting that:

   In his opinion the time had come to move ahead with active and voluntary negotiations on the Common Consolidated Corporation Tax base (CCCTB). He will shortly propose a strategy to address double taxation in the direct tax arena. That following the green paper on the future of VAT, he will by the end of the year propose to the Commission broad objectives for the future of the VAT system and recommend that they pursue a number of concrete actions as a first step. He will notably improve the communication channel between business, national tax authorities and the Commission and ensure easier access to information on VAT in the EU for businesses. He foresees the use of environmental tax as an important factor in restructuring energy tax to assist the EU's goals with respect to climate change and energy policy and in achieving a shift away from the burden of taxes on labour. He views the recently proposed financial transaction tax as complementary to other regulatory tools in working towards developing a safer financial environment for business and citizens in the EU. http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/11/650&format=HTML&aged=0&langua ge=EN&guiLanguage=en

   2.3. OECD proposals for amendments to the permanent establishment article of the model treaty

   The OECD has issued a consultation on proposed reforms to article 5 (permanent establishments) of the OECD model treaty. The proposals cover the following points:

   The determination of whether a permanent establishment exists is to be determined independently of provisions that apply to profits derived by that enterprise. So for example the profits from a farm or apartment rental office (immovable property, covered by article 6) may or may not be associated with a permanent establishment in the same state. Whether a permanent establishment is to be regarded as 'at the disposal of' a business is to be considered in the light of whether an enterprise can make use of a place to the extent and for the duration it chooses to pursue its own business plan and activities and at the exclusion of the resident enterprise if necessary. In the...