Tax

On 20 July 2022, the UK government published draft legislation for Finance Bill 2023, in addition to tax information and impact notes (TIINs), explanatory notes and responses to certain consultations. Notable amongst the various measures covered by the draft legislation are:

• amendments to the UK’s recently introduced Qualifying Asset Holding Company (QAHC) regime, which are intended to facilitate entry into the regime by certain types of fund entity, extend the existing anti-fragmentation rule and permit investment funds to be treated as satisfying the diversity of ownership condition through close association with another investment fund that fulfils the condition;
• new transfer pricing documentation requirements for large, multinational businesses operating in the UK, including obligations to maintain a master file containing information for all group members and a local file referring specifically to material transactions of the local taxpayer, each in a prescribed and standardised format as per the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines, and to complete a summary audit trail (in the form of a questionnaire specifying the main actions taken in preparing the local file);
• changes to the Research & Development (R&D) tax relief entitlement and processes, which expand the categories of qualifying expenditure, aim to focus reliefs more effectively on UK expenditure and impose certain requirements to submit pre-notifications of claims and provide additional information in support of claims; and

• the introduction of a “top-up tax” on UK parent members of multinational enterprise (MNE) groups, in cases where the group’s profits arising in a subsidiary jurisdiction are subject to an effective tax rate of less than 15%.

The top-up tax legislation, in particular, heralds another step towards the UK’s implementation of the OECD’s so-called “Pillar 2” proposals for imposition of a global minimum tax rate for MNEs in the jurisdictions in which they operate. Pillar 2 has been the subject of much discussion and debate, particularly given the remarkably complex “model rules” laid down by the OECD, the preparation required for businesses to get to grips with the rules and the rather ambitious timetable for implementation in light of the foregoing. In the UK, the rules were originally due to be given effect from 1 April 2023, but now (subject to any further delays) seem likely to apply for accounting periods beginning on or after 31 December 2023; the deferral of the UK’s implementation is reflective of, and consistent with, more widespread delays in the global implementation timetable for Pillar 2.