Read The Times Australia

Daily Bulletin

A tax headache is looming if Scotland gets more powers from Westminster

  • Written by: The Conversation
imageTax trouble in store?Dooder

Most people have heard of the Organisation for Economic Co-operation and Development (OECD) and are probably aware it wants to make the world a “better” place. Its work is probably of little interest to most companies based in the UK. But this would change if constitutional arrangements between Scotland and the rest of the UK change. This could be through independence, but equally through Scotland gaining full fiscal autonomy or even taking control of corporation tax.

In such circumstances, tax residence would become a big issue for companies operating in both jurisdictions. They would have to seek advice to avoid being taxed twice, make sure they were taxed in the most favourable regime and reduce business complexity by aiming to deal with only one tax authority. Meanwhile Scotland and the rest of the UK would have to sign a double-taxation treaty to standardise the tax position for such companies.

What the OECD convention says

It is extremely likely this treaty would be based on the OECD Model Taxation Convention, which is used by most countries around the world as a template for such arrangements. An arcane section that deals with something called “permanent establishment” (Article 5) would quickly become of critical interest to any companies affected.

Under the convention, the profits of a company are taxable in the country in which it is resident unless it does business in another country through a “permanent establishment”. A “permanent establishment” is defined as being a “fixed place of business through which the business of an enterprise is wholly or partly carried on”. It covers a “place of management”, branch, office, factory, workshop, mine, quarry, oil or gas well, or “any other place of extraction of natural resources”.

So far, so simple. If you’re there, you’re taxed there. But it’s more complicated because the convention has a number of exclusions. This includes facilities solely for storing, displaying or delivering goods that belong to the enterprise; or for buying goods or collecting information; or for carrying on “any other activity of a preparatory or auxiliary character”. It also excludes goods owned by the enterprise for the purpose of processing by another enterprise.

In short, physical presence does not always give rise to a tax liability. A company can enter into arrangements that will ensure it is not liable for tax in another country where it does business. This gives companies quite a lot of latitude to operate in a particular country without incurring tax liability.

The exclusions do not apply if either an office or an employee within the country in question can accept orders from customers, however. This was a major issue for many companies, particularly those dealing with the general public, but the internet has allowed businesses to deal directly with their customers no matter where they are located. With online retailing a significant market in the UK and still experiencing rapid growth, this means that it is possible to be in a country for business but not there for tax.

The UK dimension

So how does all this affect Scotland? The Scottish National Party (SNP) has not included a commitment for a referendum on independence for Scotland in its 2015 UK election manifesto, and its leader Nicola Sturgeon has appeared to rule out full fiscal autonomy while the party remains in the UK.

imageWatch oot, Nicola’s abootDanny Lawson/PA

But the chances of this changing, or of pressure mounting to shift corporation tax control to Edinburgh, will no doubt increase if the prospect of a large number of SNP MPs in Westminster comes to pass after May 7. At that point, companies would have to consider their positions carefully. They would have to determine their tax residence and consider the implications of their commercial arrangements.

It’s not possible to try and wish away something you don’t like. The issues around “permanent establishment” would have major implications for any tax negotiations between Scotland and the rest of the UK, since each country would want to maximise its corporation tax revenues.

Grahame Steven does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

Authors: The Conversation

Read more http://theconversation.com/a-tax-headache-is-looming-if-scotland-gets-more-powers-from-westminster-40913

Business News

Why Choosing the Right Bollard Supplier Matters for Australian Businesses and Public Spaces

From busy CBD streetscapes to sprawling warehouse loading docks, bollards have become one of the most essential safety and security fixtures across Australia. Whether protecting pedestrians from veh...

Daily Bulletin - avatar Daily Bulletin

Why Modular Content Is Transforming Modern Marketing Teams

Modern marketing teams are expected to produce more content than ever before. They need to support websites, landing pages, email campaigns, social channels, product pages, sales enablement material...

Daily Bulletin - avatar Daily Bulletin

Everything You Need to Know About Getting Support from Optus

Whether you've been an Optus customer for years or you've just switched over, at some point you'll probably need to contact their support team. Maybe your bill looks different from what you expected. ...

Daily Bulletin - avatar Daily Bulletin

The Marketing Strategy That’s Quietly Draining Sydney Business Owners’ Bank Accounts

Sydney businesses are investing more in digital marketing than ever before. The intention is clear. More visibility should mean more leads, more customers, and steady growth. However, many business ...

Daily Bulletin - avatar Daily Bulletin

Why Mining Hose Solutions Are Essential For High-Performance Industrial Operations

In environments where the ground itself is constantly shifting, breaking, and being reshaped, every component must be built to endure. Mining operations are among the most demanding in the industria...

Daily Bulletin - avatar Daily Bulletin

The Reason Talented Teams Underperform

If you’re in business, you might have seen it before. A team of capable and smart people just suddenly slows down, and things start spiraling out of control. On paper, everything looks perfect, but ...

Daily Bulletin - avatar Daily Bulletin

Why More Aussie Tradies Are Moving Away From Paid Ads

Across Australia, a lot of tradies are busy. There’s no shortage of demand in industries like plumbing, electrical, landscaping, and building. But being busy doesn’t always mean running a smooth or...

Daily Bulletin - avatar Daily Bulletin

Why Careers In The Defence Industry Are Growing Rapidly

The defence sector has evolved far beyond traditional roles, opening doors to a wide range of opportunities across technology, engineering, intelligence, and operations. This is where defense industry...

Daily Bulletin - avatar Daily Bulletin

Strategic partnerships to enable global acceleration for Aussie fashion brands: SHEIN Xcelerator launches

SHEIN Xcelerator is introducing a more agile, demand-led operating model, allowing brands to scale while retaining control over creative direction and identity. For fashion brands, the pressure t...

Daily Bulletin - avatar Daily Bulletin

The Daily Magazine

Australia’s Best Walking Trails and the Shoes You Need to Tackle Them

Australia is not short on spectacular walks. You can follow ocean cliffs in Victoria, cross ancien...

Why Pre-Purchase Building Inspections Are Essential Before Buying a Home in Australia

source Have you ever walked through an open home and started picturing your furniture, family d...

5 Signs Your Car Needs Immediate Attention Before It Breaks Down

Car problems rarely appear without warning. In most cases, your vehicle gives clear signals before...

Ensuring Safety and Efficiency with Professional Electrical Solutions

For businesses in Newcastle, a safe and fully functioning workplace remains a key part of day-to-d...

Choosing The Right Bin Hire Solution For Hassle-Free Waste Management

When it comes to managing waste efficiently, finding the right solution can save both time and eff...

Why Cleanliness Is Critical In Childcare Environments

Children explore the world with curiosity, often touching surfaces, sharing toys, and interacting ...

What to Look for in a Reliable Australian Engineering Partner

Choosing an engineering partner is rarely just about technical capability. Most businesses can fin...

How to Choose a Funeral Home That Supports Families with Care

Choosing a funeral home is rarely something families do under ideal circumstances. It often happen...

Why Premium Coffee Matters in Modern Hospitality Venues

In hospitality, details shape perception long before a guest consciously evaluates them.  Lightin...