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JUNE 2016 LONDON


Tax-efficient funds [ PETER O’DWYER ]


A FUND is a collective investment vehicle for a large or small number of investors. They are generally recognised as a good


How should


multinationals be taxed? [ DAVID GOLDBERG QC ]


MANY PEOPLE are angry – not least about the amount of tax paid by multinationals. Any form


of taxation of income raises questions of quantification. A turnover tax is quite different from a tax on income and can have unfortunate consequences. It is a tempting solution to the problem posed by the low level of tax paid by Google, but the potential complications outweigh the benefits. It may be that a consumption tax will be imposed in the future. But if we are to tax profits, we need to ascertain what profits are. Increasing sophistication of accounting practice, however, can result in the ascertainment of ‘profit’ which is not appropriate for levying tax. The UK taxes income that has a UK source or belongs to a UK resident. For a corporation, residence is largely a matter of choice, though there are provisions for deeming the income of non- resident companies to be income of individuals or related companies. UK policy is to fully tax worldwide income of residents; this policy is not generally followed elsewhere.


It is, in fact, US tax that is being avoided, and this is no reason for anger in the UK.


The ‘champagne cases’ established the rule for deciding when a non-resident is trading in the UK: the non-resident can choose whether or not his profit arises in the UK. Until recently, this has been generally accepted. Google has taken advantage of this phenomenon, and of the protection of the tax treaty with Ireland. As a result, untaxed money has ended up in Bermuda. It seems, in fact, that it is US tax which is being avoided, and this is no reason for anger in the UK. It would be helpful if HMRC explained this to the public, MPs and the OECD.


028


The ITPA Green Book 2017 www.itpa.org


thing, though they have their critics. An international fund enables investors in many countries to invest in a diversified fund. It may take the form of a partnership, a company or a unit trust. Tax may be levied at the fund level, but this is not usual. Tax is commonly withheld on dividends and interest. Location is crucial, and the fund must ensure that the location is where it is expected to be. A fund can still be resident in a treaty country even if the country does not actually impose any tax on it. Cyprus became a popular location for investment in Russia and Mauritius for investment in India. The recent OECD Report approves of widely-held funds.


Tax may be levied at the fund level, but this is not usual.


A fresh look at Hungary [ ÁKOS MENYHEI ]


The corporate tax rate is 10% up to HUF 500m and 19% on the excess.


There is an IP regime with close to 0% and many treaties with 0% withholding on royalties. There is now a trust regime, which adopts the English trust to Hungarian law. It is merely a contract and confers no interest in trust property in any beneficiary. The maximum duration is 50 years. Registration is not required if the trust is professionally managed. There is no tax on transfer of assets to the trustee. The trust is taxed as a corporation, but is not a taxpayer for VAT and is not required to publish accounts. Distribution of capital is tax-free, but there may be a stamp duty charge.


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