[World Tax News] UK Releases Guidance on TP Records Requirement for Permanent Establishment and More

Editorial Team – [2023] 156 taxmann.com 594 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. UK releases guidance on TP records requirement for Permanent Establishment

The UK HM Revenue & Customs (HMRC) has released guidance pertaining to the transfer pricing record obligations for permanent establishments within the UK, considering the modifications introduced by the Finance (No. 2) Act 2023.

The transfer pricing records legislation does not apply to permanent establishments that are part of an MNE group that meets the CbCR threshold. That is because Schedule 5 to Finance (No. 2) Act 2023 defines the relevant transfer pricing records as records that may relate to the calculation of profits or losses in accordance with Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010).

The calculation of the chargeable profits of a non-resident carrying on a trade through a permanent establishment in the UK is undertaken in accordance with sections 19 to 32 of Chapter 4 of the Corporation Tax Act 2009. As a result, there are no specific record-keeping requirements for permanent establishments beyond the general duty to keep and preserve such records as are required to make and deliver a correct and complete return.

The 2022 Transfer Pricing Guidelines establish documentation standards for demonstrating that permanent establishment profits align with the arm’s length principle. Groups may include permanent establishment transaction details in their Local File to streamline documentation for related party transactions.

Additional documentation beyond the OECD standard will be required to record the existence of a permanent establishment and the characterisation and terms of any dealings between the PE and the rest of the enterprise.

Source: HMRC update on Transfer pricing records: Permanent Establishments

2. Hong Kong to enhance the aircraft leasing preferential tax regime

On November 17, 2023, Hong Kong published the Inland Revenue (Amendment) (Aircraft Leasing Tax Concessions) Bill 2023 to enhance the aircraft leasing preferential tax regime.

The Bill aims to provide the following legislative amendments including:

(a) Qualifying aircraft lessors with a tax deduction of the acquisition cost of aircraft;

(b) Expand the scope of the Regime to include wet lease and funding lease and remove the one-year term of lease restriction;

(c) Provide a more general meaning of “aircraft leasing activity” so that the Regime will cover leasing activities other than leasing aircraft to aircraft operators;

(d) Allow deduction of interest payable for acquisition of aircraft to a financier outside Hong Kong who is not a financial institution and may be an associate of the borrower; and

(e) Prescribe threshold requirements for aircraft lessors and leasing managers qualifying for the Regime to comply with the Organisation for Economic Co-operation and Development (OECD) requirements.

Upon the passage of the Bill, the legislative amendments will take retrospective effect from the year of assessment beginning on April 1, 2023, to allow the early implementation of the enhancement measures.

The Bill will be introduced into the Legislative Council for first and second readings on November 29.

Source: Inland Revenue (Amendment) (Aircraft Leasing Tax Concessions) Bill 2023

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