International travel is increasing following suppressed levels during pandemic years and as hybrid and remote workers seek to work away from their home locations.  We are aware that monitoring individual mobility is high on HMRC’s agenda.  We have also seen tightened permanent establishment interpretations in the context of “home offices” implemented in domestic legislation in countries such as Spain, Portugal and Belgium potentially signalling tax authorities are looking to take a stricter view on these working practices.  There are inherent risks not only for the individual’s filing position, to include overseas payroll obligations as an example, but also the risk of the firm inadvertently creating permanent establishments in overseas jurisdictions. Non-compliance can lead to double tax relief issues, re-filing positions and late filing penalties.  The movement of people can be pro-actively managed and we recommend firms have a robust travel policy in place.

HMRC recently published guidance on the possibility that employees of foreign entities working temporarily in the UK might create a permanent establishment. The guidance includes examples of foreign employees spending blocks of time working in the UK and considers the instances in which these employees create a permanent establishment.

Examples

The new guidance, found in HMRC’s International Manual under INTM264435, focuses on the impact of the fixed place of business permanent establishment definition in the five scenarios included. HMRC cautions that businesses in similar situations would have to determine whether the conditions for a dependent agent permanent establishment may be met, under similar facts and circumstances.

Example 1:

“Juan, who works for a foreign entity in State D, comes to Brighton on holiday and stays on to work here for a total of 40 calendar days including his holiday, using the office of a UK affiliate company as a base. He enjoys the experience so much he decides to do the same thing six months later.”

Under this arrangement, Juan’s presence would not create a fixed place of business permanent establishment because the permanence test would not be met. However, if this arrangement were to become an annual occurrence for Juan and/or his successors or colleagues, the business may have to consider whether the cumulative time spent in the UK could trigger a permanent establishment.

Example 2:

“Francine, a French national with an English partner, joins a French company on a permanent contract which permits her to spend a fixed three-month period each year working in the UK”.

Unlike the situation in Example 1, this arrangement would meet the permanence test for a fixed place of business permanent establishment because the cumulative time she is anticipated to spend in the UK over the coming few years is significant and her presence in the UK is fixed, not random or sporadic. Whether a UK permanent establishment would be created would depend on the broader facts and circumstances.

Example 3:

“Alexei, Luca and Sara all work for a foreign entity in State C. They come to the UK on holiday for the same part of the year with their families, staying at different addresses. They are all permitted to stay on an additional 30 days to work in the UK by their employer, using the office of a UK affiliate company as a base.”

Under this arrangement, the employees’ presence would not create a fixed place of business permanent establishment because, irrespective of any other conditions, the permanence test would not be met.

Example 4:

“Company T has a team of staff in its Zurich office. Over the course of nine months, six staff are permitted to spend six weeks each, in turn, at an affiliate company’s office in London working on a project.”

HMRC concludes that this scenario would meet the permanence test for a fixed place of business permanent establishment, because the changing identity of the visiting personnel doesn’t affect the continuity of Company T’s presence in the UK.

Example 5:

“Jasmine, who works for a company based in the UK, is seconded to cover six months of maternity leave for a related foreign company in State E. She does this remotely from her UK office and her home in London.”

HMRC states that this scenario will not be automatically exempt from triggering a fixed place of business permanent establishment of the related foreign company in the UK, and concludes that the facts will have to be examined as usual to determine if a permanent establishment is triggered.

Whilst not legislative, we are aware of some businesses encountering increased issues with branch tax filings in Belgium.

Belgian branch tax filings are often due for filing before UK accounts have been finalised. Previously the Belgian tax authorities were willing to offer filing extensions in such circumstances however this no longer seems to be the case, with the tax authorities levying penalties and unreasonable tax assessments.  The position will need to be monitored with businesses needing to consider the most appropriate alternative to obtaining an extension to ensure they are able to meet their Belgian tax filing obligations and mitigate the risk of non-compliance. 

There are also an increasing number of tax audits with a particular focus on whether businesses are appropriately adhering to withholding tax compliance.  

New Trust Reporting Requirements have been introduced in Canada to increase the transparency of trust structures. This could have an impact on professional service firms and result in reporting requirements for the first time. For example, a law firm that holds funds on account in respect of property sales on trust for the client could now be brought into the reporting requirement.

Currently trusts in Canada are required to file an annual “T3 return” if there are taxes payable or a distribution is made to one or more beneficiary although reporting is not required for trusts with no income or for bare trusts. For trust taxation years ending on or after 31 December 2023 (filing due on 31 March 2024), all non-resident trusts that currently have to file a T3 return will be required to report additional information as part of that return each year. The draft legislation also specifically includes bare trusts within the scope of these new rules and hence could result in a T3 filing requirement for the trust the first time. Further details can be found at: Tax - New trust reporting requirements | BDO Canada. The legislation is expected to apply to trust year-ends ending on or after 31 December 2023.

Enhanced Mandatory Disclosure Rules

Enhanced mandatory disclosure rules received royal assent on 22 June 2023. Enhancements to the rules align with international best practices and aim to better provide the Canada Revenue Agency (CRA) with information to respond to tax risks. This could impact tax lawyers who may be providing services in scope of the new reporting rules and requiring reporting. Further details can be found at: Mandatory disclosure rules – Overview - Canada.ca

With travel restrictions in China lifted, business travel is returning to China. The Ministry of Finance and State of Administration of Taxation have permanently extended the preferential tax regime available for bonuses. Individuals can choose to treat annual bonuses as a separate income for PRC IIT calculation purposes. This can be beneficial as it can attract a lower tax rate through being treated as a separate income item for PRC IIT calculation purposes rather than as part of their regular wage and salary income. Professional services firms paying bonuses to their Chinese employees might therefore consider alerting their employees that options are available to them so they can consider their optimal personal position.

In 2023, the Bar Council of India (BCI) announced it was permitting law firms to practice in India (subject to specific parameters) for the first time. In our previous article, we explored the opportunity and what has changed.

International firms have frequently struggled with obtaining relief for withholding tax in India. From 30 September 2023, the Indian tax authorities changed the administrative process for making a tax treaty claim. In order to make a treaty claim, it is necessary for a foreign entity working with Indian clients to include a “Form 10F” in the information provided to the Indian client. Going forward, electronic versions of Form 10F are required to be generated on the Indian tax portal. The form asks for the foreign entity’s “Permanent Account Number” (Indian tax registration number). It is relevant to note that the technical requirements of when a firm is required to obtain a PAN have not changed although firms without PANs may find it harder going forward to provide the necessary information to their Indian clients due to the new online process. Completing the relevant forms can be time consuming and we would encourage businesses to engage with BDO India for practical help and support.

The Oman Tax Authority has issued a recent clarification providing an indefinite suspension of WHT on interest and dividends from 29 December 2022. This could provide relief to those professional services businesses that remit profits from companies in Oman within their structure or have interest bearing loans in place with Oman entities. Please note however, that the suspension only relates to interest and dividends. Where businesses are working for clients based in Oman, they will still need to consider whether withholding tax is due on payment of invoices for professional fees where under domestic legislation, a withholding tax rate of 10% applies in the absence of relief being available under a double tax treaty.

Businesses with operations within the UAE will soon find themselves within accounting periods subject to UAE corporate tax which applies for financial years starting on or after 1 June 2023. The headline rate is 9% although a 0% rate can be available for businesses operating in the UAE Free Zone generating "Qualifying Income". A Cabinet Decision was issued on 25 October 2023 to provide guidance on income sources subject to the 0% rate. There remain questions on the application which are anticipated to be clarified soon through issued examples. BDO UAE are able to provide guidance to assist firms with determining the applicable rate for their anticipated income sources.

Firms will also need to consider their registration requirements and how taxable profits will be computed. The corporate tax legislation broadly permits deductions in line with arm’s length transfer pricing considerations. For international businesses the largest expense of UAE branches is anticipated to be salary and employed partner costs. Specifically in respect to partner remuneration, firms will need to consider how to conduct appropriate benchmarking in order to claim the appropriate deduction for these costs.