Welcome back to ADITextra – the theme for this week’s blog for ADIT International Tax candidates is support.
At Extratax Training, we believe strongly in the ADIT qualification, and offering you the best ADIT support. We want to see tax professionals around the world studying for it and becoming International Tax Affiliates of the Chartered Institute of Taxation.
This week was a time for celebration as 554 candidates passed at least one ADIT exam. But it was also a time for reaching out & offering support where it was needed.
Read on to learn about the topics covered in this week’s online ADIT International Tax classes. The spotlight for this edition of ADITextra is UK corporation tax.
1. Transfer Pricing
Following on from last Tuesday’s session, James (Jimmy) Ryan highlighted a key outcome from a functional analysis. Once a functional analysis is complete, it is possible to understand the economic purpose of each entity within the ‘value chain’. Understanding the value chain allows you to classify each entity and apply the correct transfer pricing method.
Typically, there is a direct correlation between the profit (and loss!) potential of a company and the type of functions it performs, the risks it assumes and the assets it uses. Last week’s ADITextra discusses how a good functional analysis draws out the FAR:
Complex entities holding intellectual property, assuming more risks and performing more complex functions would be considered to be ‘entrepreneurial’ in nature. In contrast, simpler entities carry out activities which can be easily replicated, such as distribution activities, contract manufacturing or contract research & development. These ‘routine’ entities will typically be the ‘tested party’ when determining the arm’s length pricing.
Jimmy continued by looking at how an entity with a sales function could be classified:
Sales support service
Sales agent or commissionaire
Limited risk distributor
Full risk distributor
Similarly, a company with a manufacturing function could be classified as a:
Full risk manufacturer
After the ADIT results for December 2020 were released on Wednesday evening, we celebrated the success of last semester’s Extratax Training candidates.
Unfortunately, we had one Transfer Pricing student who didn’t achieve a pass mark. As part of our ADIT support system, we arranged a catch up. During the call, he explained that he had not managed his time correctly during the paper, so was not able to attempt all the required questions. This is a common yet critical error. It highlights the importance of practising past papers under exam conditions and being rigorous with your time keeping during the exam.
The good news is that we’re supporting him to resit the paper. He’s joining this semester’s course to refresh his knowledge and improve his exam technique through completing the weekly assignments and sitting a mock exam.
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. Don’t delay – book today to benefit from our ADIT support.
2. Principles of International Tax
In Wednesday’s Principles of International Tax class, Jimmy started by discussing the two past papers questions which the students had completed for the weekly assignment. As a highly experienced ADIT lecturer, Jimmy is ideally placed to offer advice on answering exam questions and help the students learn how to showcase their knowledge to the examiner.
While getting expert guidance is important, you will only learn by doing. We can sometimes fool ourselves by reading an exam question and thinking ‘I can answer that’, but it’s not so easy to sit down and write out an answer. That’s the real test of your expertise. And, of course, having someone knowledgeable giving you feedback on your answer is invaluable.
Jimmy then continued the detailed review of the OECD Model Tax Convention. If you missed it, check out last week’s ADITextra to watch Jimmy’s introduction to the OECD Model Tax Convention. He guided the students through the following articles:
Article 6 – Income from Immovable Property
Art 7 – Business Profits
Article 10 – Dividends
As part of the discussion on Article 10, Jimmy explained the concept of ‘beneficial ownership’, with reference to the following case law:
Prevost Car Inc v The Queen
Velcro Canada v The Queen
Tiger Securitisation Specialty Co
Celebrating ADIT Success
Following an anxious wait for the pass lists to be published on Wednesday evening, the celebrations began. 80% of the candidates who completed the Principles of International Tax course last semester passed the December 2020 paper! This compares very favourably to an overall pass rate of 51%. We’re so proud of their achievements.
It’s not too late for you to join the Principles of International Tax course to benefit from our ADIT support – 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
Thursday’s UK tax class with Extratax Training’s founder Catriona Loughran moved from personal tax to corporate tax. Catriona started by giving an overview of UK corporation tax, before zooming in on the main topic – corporate residence.
One of our aims is to improve accessibility to ADIT study courses – that’s why we focus on online training so that you can join from anywhere in the world. But accessibility isn’t just about being able to attend the classes, it’s about designing study materials to make it possible for you to gain sufficient knowledge of UK tax with little or no practical experience in UK tax.
In the UK paper, you would not be asked to do a full corporation tax calculation, or discuss reliefs like capital allowances or patent box in any detail. These are the types of topics you would study for the CTA qualification. However, you may be asked to advise a group setting up in the UK for the first time about the UK corporation tax regime. Therefore, it’s important that you have a general awareness of corporation tax. Plus, it is helpful when you come to study complex areas like Controlled Foreign Companies and the Corporate Interest Restriction.
Corporate Residence in the United Kingdom
When it comes to corporate residence, there are two tests in UK domestic law for determining whether a company is UK tax resident:
The incorporation test – a legislative test contained in s14 Corporation Tax Act 2009
The “central management and control” test – developed through case law
Catriona discussed the key cases on ‘central management and control’ (CMC):
De Beers Consolidated Mines v Howe (Surveyor of Taxes)  AC 455
Bullock v Unit Construction Company  Ch 147
Untelrab Ltd v McGregor (HMIT)  Sp C 55
News Datacom v Atkinson  S.T.I. 2346
Wood v Holden  EWCA Civ 26
Laerstate BV v HMRC  UKFTT 209 (TC)
Development Securities plc and others v HMRC  EWCA Civ 1705
After examining how a company is resident under UK law, Catriona looked at the impact of the UK’s double tax treaties. This included comparing the ‘old’ treaty tie-breaker clause on ‘place of effective management‘ with the ‘new’ clause, where the competent authorities consider a number of factors in seeking to reach mutual agreement.
Tailored ADIT Support
The December 2020 ADIT results show how our approach to teaching the UK course works for different types of students. Limiting class sizes to 15 means that we can offer you tailored ADIT support.
Contrasting two of our successful candidates, both of whom took advantage of one-to-one sessions with Catriona in the days leading up to the exam:
- One was sitting the ADIT UK module as part of achieving the CTA qualification (did you know you can effectively substitute the ADIT Module 2.09 for the Taxation of Major Corporates advanced technical paper?) She is at an early stage in her tax career, but has good knowledge of UK tax due to her previous studies and ongoing work experience.
- The other was working towards the ADIT qualification to demonstrate his international tax expertise. He is a tax lawyer with many years of experience, and is indeed a professional of international tax in his home country. However, he had little experience of UK tax and described finding Extratax Training to coach him for the UK exam as a ‘blessing’.
You can still choose to join the UK class and benefit from our ADIT support – 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
An exciting update on our US Tax course, which starts this Thursday, 11 March. We’re delighted to announce that the lead tutor is Ishali Patel.
Ishali is a dually US and UK tax professional with over 17 years of experience with large and medium sized firms, advising on the US and UK tax needs for US persons living outside of the US. She is an IRS Enrolled Agent and a UK Chartered Tax Advisor. Having spent her career helping her clients navigate the complex worlds of both jurisdictions, she has a wealth of practical examples to bring the ADIT US Tax syllabus to life.
Ishali has always felt that a qualification such as ADIT would have helped immensely in her international tax career. She believes that the US Tax syllabus provides excellent coverage of the issues affecting globally mobile individuals and international businesses.
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 Corporation Tax
Each week, we’ll put the spotlight on a topic covered in one of our classes. This time, let’s look at the overview of UK corporation tax provided by Catriona in this week’s class.
It was Budget Day in the UK on Wednesday, with the Chancellor of the Exchequer announcing some changes to UK corporation tax. The headline grabbing announcement was the increase in the standard rate of UK corporation tax – from the current rate of 19% to 25% on 1 April 2023.
Any changes as a result of the 2021 Budget are not examinable for the June 2021 exams. You will be examined on legislation up to and including Finance Act 2020. However, you are expected to have a general awareness of developments up to the date of your exam. A 6% increase in the standard rate of corporation tax is one to note, as it could impact investment decisions by multinational groups.
Introduction to UK Corporation Tax
UK resident companies must file tax returns under Corporation Tax Self Assessment (CTSA) for an accounting period (generally in line with company’s financial year). The following documents should be filed with HM Revenue & Customs (HMRC):
- CT600 tax return plus any supplementary pages, e.g. group relief, controlled foreign companies,
- Statutory accounts (audited if required) in an iXBRL format,
- Computations necessary to show that the return is complete and correct.
Returns are due within 12 months of the end of the accounting period. The starting point for the calculation of trading profits is the accounting Profit before Tax, calculated in accordance with UK Generally Accepted Accounting Practice (GAAP). Depending on the size of the company’s taxable profits, payment is due:
- 9 months and 1 day after the end of the accounting period, or
- in quarterly instalments, with the dates differing under the ‘large’ and ‘very large’ regimes for quarterly instalment payments.
There are a number of beneficial tax reliefs in the UK, including:
- Capital allowances for expenditure on fixed assets:
- Plant and machinery
- Integral features
- Structures and buildings
- Research & Development (R&D) tax credits:
- R&D scheme for Small & Medium-sized Enterprises (SMEs)
- Large company R&D scheme offering a Research & Development Expenditure Credit (RDEC)
- Patent box regime offering the benefit of a lower tax rate
Watch & Learn
Watch part of this week’s UK class for an introduction to UK corporate tax.
There’s still time to join our UK Taxation course – book today and let us guide you to ADIT success.
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