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Uncertain tax treatment rules still complex and confusing, warns ICAEW

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Published: 15 Sep 2021 Update History

Draft legislation and guidance implementing the government’s plans for large businesses to report uncertain tax positions will introduce additional complexity and not provide the clarity taxpayers need, according to ICAEW’s Tax Faculty.

While acknowledging that the draft legislation and guidance published in July and August, have taken into account feedback from two previous consultations, ICAEW argues that they still do not provide certainty on how the rules will be applied and are not simple to understand.

In ICAEW Rep 86/21, the Tax Faculty highlights concerns over the real-world application of the three remaining triggers for a notification of uncertain tax treatment and calls for further guidance in a number of areas.

Looking at the triggers it warns that the first – where a provision has been recognised in the business’ accounts to reflect that additional tax may be payable due to uncertainty in legal interpretation (formerly trigger E) – will apply in a greater number of instances that HMRC is expecting, particularly as uncertainties related to transfer pricing are not excluded.

Meanwhile, for the second trigger – where a position is taken up that is wholly or partially different from HMRC’s interpretation of the law (formerly trigger A) – ICAEW argues that ascertaining HMRC’s position in many instances will be difficult. One of the major problems is that HMRC’s guidance is constantly being updated and it can be difficult to keep a track of what changes happened when. In addition, the guidance suggests that some items, such as explanatory and technical notes, will not constitute HMRC’s known position on an issue.

For the third, newly introduced trigger – where there is a “substantial possibility” that a court or tribunal would find the tax treatment to be incorrect – the Tax Faculty concludes that there isn’t enough guidance to help businesses understand how a court might rule on a tax treatment.

ICAEW also calls for more guidance on whether a notification of uncertain tax treatment offers any protection to a business from HMRC opening a discovery assessment if additional tax is found to be owed, and on how to deal with situations where there are multiple potential tax treatments available, given that the legislation and guidance seem to assume there will only be a single alternative option.

The faculty concludes: “Overall, we believe that the legislation and supporting guidance do not provide sufficient clarity and introduce significant additional complexity for affected businesses in fulfilling their tax administration obligations.”

Further issues highlighted by the faculty include:

  • truncated guidance on “reasonable excuse” in relation to the charging of penalties for notification failures, which it suggests should be replaced with links to more extensive existing guidance;
  • issues with the definitions of certain terms, where further guidance or clarification is suggested; and
  • the need for more illustrative examples within the proposed guidance.

Read ICAEW’s detailed response in full.

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