HM Treasury have published the consultation document on IP tax reform, including R&D tax credits – quick thoughts below the cut, more details when I get back from the US next week.
Not an esoteric offering for lunch, but the tax structure used by Google et al that’s been the subject of comment and some disapproval in certain quarters. So what is it all about? Read on below …
First, some notes:
- I haven’t advised Google or any of the other companies that have been reported as using this structure, so I’m discussing this in general tems;
- this isn’t a new structure, it’s been around for years – but it’s recently hit the business headlines, so I thought I’d explain it here; and
- this structure only works for US-headquartered groups – it relies on some quirks of US tax law. It’s not something that a UK headquartered company could use to any real effect.
Just when you thought it couldn’t get more confusing … Following on from the post on the Microsoft case, I came across a Advance Ruling given to GeoQuest Systems BV (a Dutch company) by the Indian authorities in August.
Remember that the Delhi Tax Appeal Tribunal pretty much held that all software payments are royalties, and withholding tax needs to be deducted from payments, even if for shrink-wrap boxed software? Well, the GeoQuest Advance Ruling concludes that a payment for the licensing of special purpose software does not constitute a royalty – so no withholding tax on payments made from India.
The sound you hear is my head hitting the desk in confusion.
The Advance Ruling concludes that a payment for a software license does not fall within the parameters of a “royalty,” being a payment of any kind made for the use of, or the right to use, a copyright of a literary or scientific work.
Could the department dealing with Advance Rulings tell the Tax Appeal Tribunal that, please?
In an early start to the pantomime season, the earlier sensible decision on shrink-wrap software of the Bangalore Tax Appeal Tribunal appears to have been thoroughly ignored by the Delhi Tax Appeal Tribunal, which has held that payments received by Microsoft from end users in India through distributors for sale of Microsoft off-the-shelf, shrink-wrap, software, are taxable as royalties (and so are subject to Indian withholding taxes). In effect, the decision means that any sale of software to India should have tax withheld from the payment, no matter what form the software actually takes – that’s going to make quite a difference to some profit margins.
Oh, and tax treaties with India can’t apparently be relied on, according to the court.
HMRC has published the latest set of details on the number and value of R&D tax relief and R&D tax credit claims, covering claims in 2008-9. There is an increase in the number and value of claims, but it is surprisingly small considering that 2008-9 was the catch-up deadline to get in claims for relief on expenditure over the previous six years (the relief now has to be claimed in the company tax return or amended return).
The total number of companies claiming the relief was 8,.350 in 2008-9 – that seems a very low number, and it may make the scheme vulnerable to change/removal in the upcoming consultation on how IP is taxed in the UK.