Policy paper

Income Tax: Offshore Receipts in respect of Intangible Property

Published 14 October 2019

Who is likely to be affected

Large multinational groups that hold intangible property in low tax jurisdictions, where the income which arises in relation to that intangible property is referable to the sale of goods or services in the UK. The measure will apply regardless of whether there is a UK taxable presence.

General description of the measure

The Offshore Receipts in respect of Intangible Property (ORIP) rules were introduced by section 15 of, and Schedule 3 to, Finance Act 2019. A tax information and impact note for the ORIP rules was published on 29 October 2018 which provides further details on the background to the regime.

As a result of consultation with affected businesses, advisory firms and representative bodies, certain technical amendments to the legislation have been identified that are necessary for the regime to work as intended.

Policy Objective

The policy targets multinational groups that generate significant income from intangible property through UK sales, and have made arrangements such that the income is received in offshore jurisdictions where it is taxed at no or low effective rates. The rules tax the proportion of that income which is referable to the sale of goods or services in the UK.

This measure will reduce the opportunities for large multinationals to gain an unfair competitive advantage by holding their intangible property in low tax offshore jurisdictions, levelling the playing field for businesses operating in UK markets.

Background to the measure

This measure was announced at Autumn Budget 2017 and a consultation ran from 1 December 2017 to 23 February 2018. The summary of responses document was published on 29 October alongside the legislation which was enacted in the Finance Act 2019.

The legislation included a regulatory power to make technical changes to the detailed provisions to alleviate any unintended outcomes. Draft regulations were subject to consultation from 24 May 2019 to 19 July 2019.

Detailed proposal

Operative date

Most of the amendments made are treated as having effect from 6 April 2019 when the ORIP rules commenced. A few of the amendments will have effect prospectively from the date the regulations are made.

Current Law

The ORIP rules are at Chapter 2A of Part 5 the Income Tax (Trading and Other Income) Act 2005.

Proposed revisions

Legislation will be introduced by draft affirmative statutory instrument to amend the ORIP rules. The amendments include:

• extending the scope of the legislation to businesses that do not qualify for relief under a double tax treaty (section 608D)
• changes to the definition of UK sales:
  • ‘Look-through’ rules for distributors and resellers, that is those who simply sell on unchanged goods and services (section 608F)
  • clarification on when online advertising will be a UK sale (section 608F)
  • clarification on third party sales where intangible property makes an insignificant contribution (section 608GA)
• a new exemption for companies resident in a specified territory. The regulations include a power to make further regulations in this respect (section 608JA)
• double taxation and consequential amendments:
  • introduction of an exemption for income of opaque partnerships which is taxable in certain jurisdictions to prevent a tax charge arising on both the partners and the partnership (section 608MA)
  • exemption for tax transparent entities that are situated in certain jurisdictions and are one hundred per cent owned by residents in that territory
  • exemption from a double ORIP charge on entities in the same control group (608MC)
  • Clarification that there is no duty to withhold income tax on payments that are also chargeable under the ORIP rules (section 981A Income Tax Act 2007)

Summary of impacts

Exchequer impact (£million)

2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
nil	nil	nil	nil	nil	nil

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only affects businesses.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that this measure will have any impacts for groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to impact on a small number of large multinational groups that hold intangible property in low tax jurisdictions, where the income which arises in relation to that intangible property is referable to the sale of goods or services in the UK. This measure will reduce the opportunities for large multinationals to gain an unfair competitive advantage by holding their intangible property in low tax offshore jurisdictions, levelling the playing field for businesses operating in UK markets. One-off costs include familiarisation with the amendments to the ORIP rules. There are not expected to be any on-going costs.

There is not expected to be any impact on civil society organisations.

Operational impact (£million) (HMRC or other)

The additional costs or savings for HMRC in implementing the proposed revisions set out in this measure are anticipated to be negligible.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through communication with affected taxpayers.

Further advice

If you have any questions about this change, please contact the Base Protection Policy Team on telephone: 03000 599915 or email: [email protected].

Declaration

Jesse Norman MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.