Welcome back to ADITextra – the new blog for the ADIT community from Extratax Training. Here you’ll find out what’s been happening in our online ADIT courses each week.
You’ll learn more about our study programmes and how we support your ADIT journey. And if you’ve chosen the self-study option for your international tax exams, you can follow our training schedules as a guide to keep you on target.
Each week, we’ll select a key topic from one of the classes for the Spotlight section. This week, it’s the UK’s Statutory Residence Test – learn more in Section 5 below.
1. Transfer Pricing
Tuesdays are Transfer Pricing day at Extratax Training, with James (Jimmy) Ryan sharing his TP expertise. In Week 2 of this semester’s course, Jimmy talked about the methods set out in the OECD Transfer Pricing Guidelines:
Traditional Transaction Methods
- CUP – Comparable Uncontrolled Price
- RPM – Resale Price Method
- Cost Plus
Transactional Profit Methods
- TNMM – Transactional Net Margin Method
- Profit Split Method
Taking each method in turn, Jimmy used examples to explore when each method would be appropriate and the factors to consider when using it. This is important because, in the exam, you’ll be required to advise on the most appropriate TP methods for the scenario before you. You need to apply the Transfer Pricing Guidelines and understand how the methods work in practice.
It’s not about repeating the wording of the Transfer Pricing Guidelines. It’s all about applying your transfer pricing knowledge.
Building an ADIT Community
Although it’s only the second week of the course, the Transfer Pricing students are already bonding over their shared ADIT experience and supporting each other with their learning. This is great to see, as building a global ADIT community is one of our key aims at Extratax Training.
There’s still time for you to join the Transfer Pricing course – we’re accepting bookings until 8 March. You can catch up on the classes by watching the recordings and you’ll have one-to-one access to Jimmy and the team to get you fully up to speed.
2. Principles of International Tax
Wednesdays mean that Jimmy’s back for Principles of International Tax. And our cohort this semester is truly international, stretching from the UK to the UAE, via Germany, Switzerland and Lithuania!
This week’s topic was double taxation. After looking at the causes of double taxation, Jimmy moved on to outline methods of relief from double taxation – the credit method, the exemption method – along with the pros & cons of each method.
Then Jimmy explained the interaction of double tax relief systems with the concepts of:
Capital Export Neutrality
Requires that sellers/investors face the same tax rate wherever the products are sold, thus maximising the choice of outbound investment opportunities.
Capital Import Neutrality
Requires sellers/investors in a particular location to face the same tax rate no matter where they are located, thus maximising the choice of inbound suppliers for consumers, and inbound capital investment, i.e. savers.
ADIT Community in Live Classes
Naturally, the students had lots of questions on the topic, leading to an engaging and informative discussion. That’s the benefit of live classes with a small group – you can ask questions to check your understanding and deepen your knowledge.
It’s not too late for you to join the Principles of International Tax course and become part of our ADIT community – you can book online until 8 March. And don’t worry, you can catch up on the classes by watching the recordings. Plus you’ll have one-to-one access to Jimmy and the team to get you fully up to speed.
3. UK Tax
On Thursdays, it’s time for the UK class, taught by Extratax Training’s founder Catriona Loughran. After last week’s overview session, the focus for this week was the residence of individuals.
This is a key topic for the ADIT UK course. It’s fundamental that you are able to identify whether or not an individual is tax resident in the UK in a tax year.
Why does residence matter? Because an individual resident in the UK is subject to UK tax on worldwide income and gains (on an arising or remittance basis, depending on domicile statue). While a non-resident is liable to UK tax where there is a UK source.
Check out Section 5 below for more details on UK residence for individuals, including an extract from this week’s class.
Past Paper Questions
Personal residence could be the starting point for a question, or it could be the main focus. One of the skills that the students will learn through practicing questions each week is how much time to spend discussing residence. It could be easy to devote your whole time for a question to working through the Statutory Residence Test – when the examiner intends you to reach a conclusion within a few minutes and move on to addressing other topics.
This week, the students looked at two past paper questions covering personal residence. During the class, the participants worked through Q9 from the June 2017 exam. Everyone took time individually to think about their approach to the question. Then the class came back together to discuss it. The question generated an interesting discussion, particularly around how to advise the person wanting to leave the UK about maintaining a non-UK resident position.
Secondly, the students have part of another past exam question to complete as the weekly assignment. This time, they have to consider the residency position of someone coming to work in the UK. Looking at these two questions will strengthen their understanding of the differences between applying the Statutory Residence Test to someone leaving the UK & someone coming to the UK.
You can still choose to join the UK class – the deadline to book is 8 March. You can catch up on the classes by watching the recordings. Plus you’ll have one-to-one access to Catriona and the team to get you fully up to speed.
4. US Tax
Next for an update on US Tax. While we’re getting ready for the US classes starting on Thursday 11 March, Catriona took an opportunity to improve her understanding of US transfer pricing. She joined a webinar by Robert Misey on ‘Transfer Pricing for Foreign-Owned U.S. Companies‘. It was an entertaining and educational hour as Robert used practical examples to illustrate the identification of related party transactions and the US rules on transfer pricing methods.
When studying transfer pricing for the US, or other jurisdiction modules, it is important to think about the domestic rules, including –
- Which legislation requires the application of the arm’s length principle?
- What are the exact requirements of the domestic legislation?
- Which transfer pricing methods are acceptable?
- Who is a connected party?
- Are there any exemptions?
If you’re familiar with the OECD Transfer Pricing Guidelines, it can be tempting to jump straight into them. The Guidelines are very much the focus of the Transfer Pricing paper. When you are being examined on a specific jurisdiction, your emphasis should be on the transfer pricing rules in that country.
If you’re interested in joining us for the US Tax option, we’re offering you the opportunity to book for June 2021 at a special introductory rate to celebrate adding Module 2.10 to our portfolio.
5. Spotlight on UK Tax – Statutory Residence Test
Each week, we’ll put the spotlight on a topic covered in one of our classes. This time, let’s look at the UK’s Statutory Residence Test (SRT). This forms part of a broader topic on residence, domicile and deemed domicile.
Initially, Catriona covered the materials for the students to read on the topic:
- Chapter 11 of the Extratax Training ADIT UK Tax e-book on ‘Residence, Domicile & Deemed Domicile‘
- HMRC’s guidance on ‘Residence, Domicile and the Remittance Basis‘ (RDR1)
- HMRC’s guidance on the ‘Statutory Residence Test‘ (RDR3)
The good news about the two HMRC documents is that they are contained in Part 2 of Tolley’s Yellow Tax Handbook – a permitted text for you to take into the exam. Of course, it’s important to familiarise yourself with them beforehand and use them as reference tools for applying your knowledge.
Schedule 45 to Finance Act 2013
Schedule 45 to Finance Act 2013 introduced a Statutory Residence Test (SRT) with 3 parts:
Automatic Overseas Tests
- If any of these tests are met for a tax year, an individual is conclusively non-UK resident
Automatic UK Residence Tests
- If any of these tests are met for a tax year, an individual is conclusively UK resident
Sufficient Ties Test
- Contains day-counting rules and other connection factors (known as sufficient ties) which only need to be considered by individuals whose residence status is not conclusively determined by the automatic tests.
There is guidance on applying the SRT in HMRC’s Residence, Domicile & Remittance Basis Manual (RDRM). For example, refer to RDRM11040 for the steps to be taken to ascertain an individual’s residence status under the SRT.
Watch & Learn
Watch part of this week’s UK class to learn about the Statutory Residence Test.
There’s still time to join our UK Taxation course – book today and let us guide you to ADIT success.
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