Substantial changes have been made to the profit fragmentation anti-avoidance since the original consultation was published. These rules apply to both individuals and corporates from April 2019. Businesses, including partnerships, with international aspects should consider whether they may apply and, if so, whether they need to take action.
The key change from the Government’s original proposal is that it now functions as a more typical anti-avoidance rule. Gone is the need for taxpayers to notify HMRC that the rules could potentially apply, gone is the need for payments on account, and gone is the need for HMRC counteraction. Instead, the legislation applies on a normal self-assessment basis.
While we welcome these changes, many businesses with international aspects may be affected and so will need to take action. While it is aimed at businesses outside of the scope of the current transfer pricing legislation, larger businesses with transactions not on an arm’s length basis may also be affected (e.g. transactions between parties which are not “connected person[s]”).