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This week in tax: General Electric wins battle with HMRC

Every case sets a standard

This week General Electric (GE) won a key victory in its court battle with the UK tax authority, but the case could go to the Supreme Court.

The UK Court of Appeal ruled against HM Revenue and Customs (HMRC) in favour of GE in a landmark court case on April 14. The tax authority had accused the US company of “fraudulent misrepresentation” in a past agreement.

The case goes back to a 2005 agreement between GE and HMRC, where the tax authority granted a tax deduction for a transaction. As a result, GE was able to route billions of dollars in transactions through Australia, the UK and the US.

In 2018, HMRC asked the High Court to annul the 2005 tax agreement with GE. The revenue service argued that the US company had failed to disclose all relevant information to secure the agreement. HMRC sought more than $1 billion from GE as part of its claim.

Normally such cases have a six-year limitation period, however, the High Court ruled that HMRC could pursue the claim against GE in July 2020. The Court of Appeal has rejected this decision.

“Having decided to go down [a] contractual route, rather than rely on their tax-gathering powers, the rights and obligations of HMRC under the settlement agreement then sounded in contract, not in tax law,” said Lord Justice Henderson.

The GE case could still rumble on for many years, especially if the revenue service goes to the Supreme Court. But HMRC has incurred significant costs in pursuing this case, and the US company shows no sign of backing down after this victory.

“We reject the UK tax authority’s allegations and are vigorously contesting these false claims,” said the GE spokesperson.

The US company stressed that it “complies with all applicable tax laws in every country where we do business”.

HMRC has not confirmed whether it will be taking the case to the Supreme Court to claim more than $1 billion. However, this is the only option to reverse the Court of Appeal decision.

ITR’s spring issue was published online this week, featuring such stories as:

·Tax lessons of COVID-19

·Maryland digital advertising tax case to set precedent for US state levies

·Deep dive: Indian Supreme Court’s ruling on software licensing fees

Top headlines this week, including:

·India rebuffs Cairn’s offer to settle tax dispute

·Why corporate inversions might return with Biden tax reforms

·Renewable energy needs improved incentives, say tax directors

In other news:

·The European Commission has proposed a VAT exemption for good and services made available by EU bodies to member states during crises such as natural disasters and public health emergencies.

·The Indian government has enacted legislation to increase the country-by-country reporting (CbCR) turnover threshold from $733 million to $853 million effective from April 1. This will lift the reporting obligation on Indian businesses.

·Since the US came out in support of a global minimum tax rate, low-tax EU member states including Ireland and the Netherlands have welcomed the chance to secure a multilateral agreement but signalled that they will continue to defend their interests.

·The Vietnamese government has drawn up proposals to introduce a tougher tax collection regime for the technology industry and grant inspectors access to internal company data on sellers. This could be bad news for Alibaba and Google.

Next week

ITR will be watching the Canadian government’s budget announcement for any significant tax policy developments. Many observers expect the budget to include capital gains reform, higher excise taxes and measures to curtail tax avoidance.

Meanwhile the UN is trying to finalise a treaty clause on taxing digital services. The final text is still awaiting approval. This is just as the OECD is racing to finalise its own proposals on the digital economy.

Tax experts and policymakers suggest that final approval of the UN’s alternative treaty-based proposal to tax automated digital services – a solution favoured by many developing countries – could still impede the OECD’s multilateral digital tax agenda.

At the same time, there is more change expected from the Gulf Cooperation Council (GCC). Qatar will be the fifth of the six GCC countries to introduce VAT, and tax directors expect the announcement soon.

Qatar’s innovative tax reporting system Dhareeba has been designed with VAT in mind, and Qatar has benefitted from the lessons learned by its GCC neighbours.

However, many tax professionals in the region are not optimistic. MNEs should prepare for delayed regulations and a lack of clarity. These stories are just a sample of our upcoming coverage.

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