Overview

The Taxation (International and Other Provisions) Act 2010 is a UK law that simplifies and clarifies existing tax laws related to international transactions, aiming for greater consistency and fairness in how international taxes are handled within the UK system. It covers double taxation relief, transfer pricing, advance pricing agreements, tax arbitrage, and the tax treatment of offshore funds.

Description

This act significantly alters UK tax law concerning international taxation. Key areas include:

Double Taxation Relief

The Act streamlines rules for double taxation relief, clarifying how credits for foreign taxes are applied against UK taxes (income tax, corporation tax, capital gains tax, and petroleum revenue tax). It introduces new unilateral relief arrangements for certain territories, offering relief where bilateral agreements are absent. The Act also includes anti-avoidance measures to prevent tax manipulation through schemes designed to inflate relief claims.

Transfer Pricing

The Act introduces a basic transfer pricing rule requiring tax calculations to be based on arm's-length transactions between independent parties. This prevents companies from manipulating internal pricing to reduce tax liabilities. Exemptions are provided for small and medium-sized enterprises. Additional provisions cover securities, guarantees, and oil-related transactions.

Advance Pricing Agreements

The Act formalizes the process for advance pricing agreements (APAs) to provide greater certainty for taxpayers engaging in cross-border transactions. It outlines the agreement's effects on parties and non-parties, processes for application, modification, and revocation, and penalties for misrepresentation.

Tax Arbitrage

The Act tackles tax arbitrage schemes, introducing deduction notices and receipt notices to address schemes aiming to gain an unfair tax advantage within the UK system. The act outlines specific types of schemes covered and their consequences.

Tax Treatment of Financing Costs and Income

This section focuses on multinational groups, aiming to curb tax avoidance through intra-group financing. It introduces rules for disallowing deductions for certain financing expenses and granting exemptions for specific financing income to ensure a fairer tax treatment.

Offshore Funds

The Act grants the Treasury the power to make regulations governing the tax treatment of participants in offshore funds, aiming to address potential tax avoidance risks associated with these entities.

Amendments and Relocations

The Act includes numerous amendments and relocations of provisions from other tax legislation, updating and organizing existing laws concerning oil activities, alternative finance arrangements, leasing, and UK representatives of non-UK residents.

Government Spending

The act's impact on government spending is complex and not easily quantifiable. Anti-avoidance measures aim to increase tax revenue by preventing tax evasion and aggressive tax planning. However, the provision of double taxation relief and advance pricing agreements could lead to some reduction in revenue.

Groups Affected

• Multinational corporations: Significant impact through transfer pricing, APA rules, and financing cost regulations.
• Companies with overseas operations: Affected by double taxation relief rules, and anti-avoidance measures.
• Individuals with international income: Impact from double taxation relief and related anti-avoidance provisions.
• Offshore fund participants: Tax treatment subject to future Treasury regulations.
• Financial institutions: Significant impact from provisions on alternative finance arrangements and financing costs.
• Insurance companies: Specific rules govern credit for foreign tax relating to insurance activities.
• Oil and gas companies: New rules impact the treatment of oil activities and related deductions.
• UK representatives of non-UK residents: New provisions clarify their tax liabilities.

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