VAT and Indian tax challenge
One of my clients carries out training courses in both the UK and overseas and we have encountered a problem with the courses delivered to businesses in India. They use Indian-based subcontractors to deliver the training, based on a syllabus and learning criteria that are set by my client to maximise the learning potential for the students. So, for example, my client might organise a ‘communication skills’ course for managers in an Indian firm of solicitors, charge a fee of, say, £5,000 to this firm, and then the subcontractors charge my client, say, £2,000.
The problem is VAT and indirect tax. First, am I correct in saying that my client will not charge UK VAT because the place of supply is India? Second, the Indian subcontractors are charging 18% integrated goods and services tax (IGST), which I understand is India’s equivalent of VAT. Is this correct? Because we are based in the UK, surely that is wrong? If it is correct, do any readers know if we can somehow reclaim this tax from the Indian authorities, a bit like with the EU’s 13th Directive system?
Query 20,771 – Delhi Dave.
Trust me, I’m in control
I act for a trading company that has been owned by an employee ownership trust (EOT) since 2019. The trustee is a corporate trustee (a company limited by guarantee) that holds 100% of the ordinary shares. Its board comprises an independent chair, a founder director and two elected employee representatives.
The company now wishes to issue shares directly to a number of key employees, and I had assumed a corporation tax deduction would be available under CTA 2009, Pt 12. The employees will be acquiring the shares by reason of employment, so the requirements of s 1018 appear to be met.
My difficulty is the independence condition in CTA 2009, s 1008, which requires that the employing company is not under the control of another company. Control for these purposes takes its meaning from CTA 2010, s 1124, which looks to the person who holds the shares and exercises the voting power. As the corporate trustee is the person with the voting power, this seems to fail the independence condition. The obvious retort is that the trustee holds and votes only in a fiduciary capacity for the employee beneficiaries, but I can find nothing in s 1124 that permits a look-through to beneficiaries who have no proprietary interest and cannot direct the votes.
If that is right, presumably this is also deemed to be a readily convertible asset?
What troubles me is that parliament thought it necessary to provide an express let-out for EOT-controlled companies in the enterprise management incentives independence requirement at ITEPA 2003, Sch 5 para 9, but no equivalent appears in s 1008. If this is right, are there any solutions to this problem, other than not using a corporate trustee and having individual trustees at EOT level?
Query 20,772 – Legislative Labyrinth.
Back from New Zealand
We have a new client who has recently returned to the UK from New Zealand. From the information that we have to date, it looks as though he left the UK in October 2015 and returned here in the 2023-24 tax year. We understand that when he left the UK, he transferred his UK-registered pension fund into a New Zealand fund, which qualified as a qualifying recognised overseas pension scheme (QROPS) and, as such, no tax liabilities arose at the time of the transfer. We believe that the New Zealand scheme is the Craigs Superannuation Scheme (called a SuperSTART account), which is on HMRC’s list of recognised overseas pension schemes.
Each year, we receive portfolio reports in relation to the New Zealand scheme, which show income and gains within the scheme. Our client has also made withdrawals from the scheme each year, and New Zealand withholding tax has been paid. Our question is: how should the scheme be taxed for our client – should our client be taxed on the withdrawals each year as overseas pension income (with credit for the New Zealand tax paid), or should he be taxed on the income and gains within the scheme as they arise?
Query 20,773 – Kiwi.
Inheritance tax
Better late than never
We have a client with an estate of approximately £2m. This consists of his own home, a holiday home, various investments, premium bonds and three buy-to-let properties. All the properties are heavily mortgaged.
He and his wife are both 80 years old and he is considering writing his will. He would like to give each of his three children one of the three buy-to-let properties, but we are unsure as to how to advise him to do this. He is aware that he would need to survive to the age of 87 for the gift to fall outside his estate on death. At the present time, the three buy-to-let properties are in his sole name, but he would be quite happy to have them transferred into joint ownership with his wife. What is the most tax-efficient way to achieve his objectives – do something now or leave things as they are until his death?
Query 20,774 – Leigh.
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