This week in tax: Uber forced to change business model over UK case
Uber will have to change its UK business model following the Supreme Court ruling that drivers using the app are employees, not independent contractors.
The US ride-hailing company will be adapting its UK business model to ensure its compliance. Uber will be changing to guarantee the minimum wage for drivers and collect VAT on service fees. This could mean a bill of more than £1 billion ($1.3 billion).
The Supreme Court ruled in February that Uber drivers are employees and therefore entitled to sick pay, holiday pay and the minimum wage. The ruling also meant that the company is liable for collecting VAT in the UK.
“This court ruling means that all the details of the Supreme Court decision are now clear. Every private hire operator in London will be impacted by this decision, and should comply with the Supreme Court verdict in full,” said the company’s spokesperson.
“Drivers on Uber are guaranteed at least the national living wage, holiday pay and a pension plan but we’re not the only player in town,” the spokesperson stressed. “Other operators must also ensure drivers are treated fairly.”
Following the Supreme Court decision, Uber took the case to the High Court seeking clarification about its business model. However, the High Court declared the company’s business model unlawful.
No private hire operators can act as an ‘agent’ between drivers and passengers, according to the High Court. Such companies are liable for VAT and have to uphold standards for drivers and passengers.
However, the ruling suggests that Transport for London (TfL) has regulatory powers to protect licensed drivers and ensure operators are compliant with the law. There are almost 2,000 private hire operators in London.
BusinessEurope wary of EU directive on BEPS 2.0
The Confederation of European Business (BusinessEurope) highlights several risks multinational enterprises (MNEs) face from the EU directive on the OECD’s global tax reform due on December 22.
The Economic and Financial Affairs Council (ECOFIN) confirmed in December that a legislative proposal to transpose the OECD’s pillar two’s global minimum tax rate in the EU is expected on December 22. However, European businesses are concerned about the trajectory of these reforms.
Director General of BusinessEurope Markus Beyrer requested the European Commissioner of the Economy Paolo Gentiloni delay the directive. He argued that there are several possible technical setbacks in implementation as model rules have still not been published by the OECD.
“A rushed implementation in the EU could be exploited by third countries to gain an economic advantage, any deviation of the rules outside the EU, now or in the future, could have a significant impact on EU-competitiveness and the fairness of the system as a whole,” wrote Beyrer on December 7.
“To ensure a level playing field for businesses, it is essential the Commission's directives ensure that implementation at EU-level is strictly dependent on the full implementation of both pillars by our key trading partners,” added Beyrer.
Many European corporate stakeholders are particularly concerned about implementation of the two-pillar solution in the US as opposition in Congress over the Biden administration’s Build Back Better plan persists. The plan has key proposals that align GILTI in the US with pillar two’s global minimum tax.
Beyrer also highlights several more challenges with an early directive on a global minimum tax, including its overlap with controlled foreign corporation (CFC) rules from the anti-tax avoidance directives (ATAD) I and II and transparency risks tied to the publication of effective tax rates.
Taxpayers face persistent TP difficulties despite OECD alignment
Businesses have to focus on transfer pricing (TP) documentation in a bid to anticipate scrutiny in different jurisdictions. This is despite widespread alignment with OECD standards.
TP difficulties continue despite governments falling in line with OECD standards. As a result multinational companies have to take a global approach to TP planning, according to panellists at The Future of Tax conference held by Hansuke Consulting.
The increasing number of tax inspections also continues to increase scrutiny over tax authorities such as Italy and Germany. Speakers assessed the key TP issues that taxpayers face in these jurisdictions.
“There are three key issues having an increasing relevance in Italy. First of all, the new operational instruction on TP documentation applicable for FY20, which aimed to align the Italian regime with the TP guidance provided by the OECD,” said a managing associateat an international consulting group.
“There’s a focus from the Italian tax inspector audits on the determination of the free capital attributed to the Italian permanent establishment (PE) of foreign financial institutions like banks,” said the managing associate.
In 2020, the Italian Supreme Court delivered a judgement (case 7801/2020) around the attribution of profit to an Italian PE of a foreign bank. The US bank Citibank was undergoing its activity as a PE in Italy, which granted loans to Italian clients.
The PE then sold the loan agreements to a third party, which led to a disagreement over the amount of tax being deducted – arguing whether the costs were related to the US bank or the PE. The Supreme Court ruled in favour of Citibank.
Next week in ITR
ITR will be analysing the prospects for continued tax competition after the OECD digital tax deal is implemented. The so-called ‘race to the bottom’ may come to an end thanks to a global minimum corporate rate, however, the 15% rate may set the finishing line for future competition.
Meanwhile, the Court of Justice of the EU (CJEU) has issued a preliminary ruling on DAC6 reporting in Luxembourg. ITR will be providing its analysis of the implications for businesses across the EU.
At the same time, multinational corporate groups in the UK are preparing to meet additional requirements in the UK as part of country-by-country reporting (CbCR). Companies will have to provide HM Revenue and Customs (HMRC) with more information in 2023.
Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.