HMRC consults on tax avoidance involving profit fragmentation

16 Apr, 2018

Historically many tax anti-avoidance rules have targeted large businesses.  Are we seeing the start of an extension of these to catch many smaller businesses?

HMRC have issued a consultation document on proposals to introduce new anti-avoidance rules. These will target businesses (individuals, partnerships or companies) which have arrangements in place whereby some of their profits accrue in low tax overseas jurisdictions. Large businesses face a number of anti-avoidance rules which can tax profits which are diverted offshore, but there are often size-based exemptions which historically have exempted many smaller businesses.

Under the new proposals, profits earned in overseas jurisdictions which have a significantly lower tax rate will become taxable in the UK, if a person in the UK has the ability to ‘enjoy’ the economic benefits of those profits. There will also be a requirement to notify HMRC of arrangements which could fall under the new rules. Exemptions will apply where there is real substance in the overseas operation.

HMRC have invited comments on the proposals. The consultation closes on 8 June 2018.

If you have any queries on the new proposed tax consultation, please liaise with your usual Crowe contact, or Paul Fay.

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