Tax Matters Digest

Our second article offers a deep dive into the recently published Court of Appeal decision in ScottishPower SCPL Ltd v HMRC. For many years, received wisdom has been that costs intended to ‘punish’ a business in some way are typically not deductible for tax purposes, although the precise technical basis for that has been debated. As our article discusses, in this case the Court of Appeal decision goes back to basics, and although unlikely to be the final word on the subject, suggests that received wisdom here may not be quite right. If the Court of Appeal is right then many businesses may have inadvertently adopted an overly prudent approach to disallowances in the past. The inevitable technical arguments over the ramifications of the decision will continue to play out, but in the meantime we expect to see many now taking action to ensure their ability to recover potentially overpaid tax is preserved.

Another case we cover in detail is Lloyds Asset Leasing Ltd v HMRC where an appeal against HMRC’s rejection of claims for cross-border group relief was denied by the First-tier Tribunal. What sets this case apart is that the claim failed on main purpose grounds while the other conditions for relief were met. Our article explores the decision.

Our next article grabs a calculator and looks at HMRC and the most recently published annual Transfer Pricing (TP) and Diverted Profits Tax (DPT) statistics. Both show increases in revenue and our team asks what the data tells us about HMRC’s approach, their likely future activity and the impact for multinationals. And don’t miss the invitation to our quarterly TP Controversy Round Table on 5 March at the end of the article.

Following the release on 28 January of the fourth, and apparently final, tranche of draft guidance from HMRC on Pillar Two, we include an article which summarises the publication. The draft guidance, which focusses on the UK Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT), is open for consultation until 8 April 2025 and interested parties are invited to reach out to their regular KPMG contact if they have comments or questions about the guidance. HMRC expect to publish final guidance in the spring. We have also included, in this edition, a link to a short briefing on Pillar Two registration requirements in the UK.

Our final few articles cover:

• The progress of the latest Finance Bill including a number of amendments that were made during the Committee stage on Pillar Two, employee share ownership trusts, the residence based IHT system and replacement to the non-dom regime, and foreign employment income relief;
• Situations where Employee Ownership Trusts might be taxable on funding contributions; and
• A new focus from HMRC on companies owning UK property to confirm they have met their Annual Tax on Enveloped Dwellings (ATED) obligations. This renewed focus seems to be on companies that have declared no profit between 2017 and 2020 on their self-assessment returns.

We also include our usual round-ups of Other News, Indirect Weekly Talking Points and updates on developments in other countries in Week in Tax.