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PwC UK FS Tax Forum - Brexit, tax policy and politics: The impact on the Financial Services operating model - Why data and disruption will change tax forever

PwC’s FS Tax Forum, held in London on 20 November, considered how the disruption of the financial services industry by new technologies could affect its tax profile. Disruption has become a fact of life for financial services companies, whether in banking, insurance or asset and wealth management. Delegates to PwC’s Tax Forum were under no illusions about the transformation to come: in a poll conducted at the event, 88% said they expected technology to change the operating model of their businesses either moderately or significantly in the years ahead. But as the industry’s value proposition begins to shift, what will that mean for the way in which value is taxed?

PwC UK FS Tax Forum: Brexit, tax policy and politics: The impact on the Financial Services operating model - The future of tax

At PwC’s FS Tax Forum, held in London on 20 November, delegates looked ahead as the pace of change in tax continues to accelerate After a decade of change, spanning everything from a new base erosion profit shifting (BEPS) regime and heightened transparency requirements, to US tax reform and the emergence of the EU as a key player in setting international standards, the tax functions of financial services businesses could be forgiven for thinking they’re due a break. No such luck: the next few years will see yet more transformation for both direct and indirect tax systems – and firms must be prepared for this change. Delegates to PwC’s tax forum are not expecting to rest on their laurels. While most do not expect fundamental international tax reform in the near future, 67% are anticipating further reforms in the years ahead – and two-thirds of them worry such changes are likely to be for the worse for their firms.

PwC UK FS Tax Forum: Brexit, tax policy and politics: The impact on the Financial Services operating model

Has the financial services industry reached an inflection point? If the 10 years since the financial crisis could be characterised as the decade of regulation, then the 10 years to come will be the decade of digitalisation. Everywhere you look within financial services, disruption is the order of the day: across the industry, businesses are rethinking their business models – and their core value propositions – as new technologies offer exciting new opportunities and create new threats.

French Withholding Tax Development

The French Senate introduced six amendments to the Draft Financial Bill for 2019 aiming at taxing payments made, under any form, over certain financial contracts. Those amendments were notably motivated by the recent articles published by various journals (notably “Le Monde”) on the CumCum and CumEx practices and inscribed themselves in the more global fight against tax fraud and tax optimisation. The objectives of the Senators is to implement new provisions inspired by US regulations (e.g. 871m). On 26 November, the Senators adopted those amendments.

Spanish FTT

On October the 19th the Spanish Council of Ministers approved a draft proposal for creating a Financial Transactions Tax (“FTT”). The creation of this tax was part of the Political Agreement for the 2019 Budget signed between the Spanish Government and the “United We Can” party in the earlier week.

November Tax Accounting Update

Our November tax accounting update covered topics ranging from VAT in financial statements to the impacts of structural reform and Brexit. Financial Services groups will need to consider how these areas may affect accounting and disclosures in FY18 financial statements and beyond.

OECD Transfer Pricing on Financial Transactions

In early July, as follow up work in relation to the BEPS project, the OECD issued a new public discussion draft paper (the “Draft Paper”) regarding the transfer pricing aspects of financial transactions. The Draft Paper seeks to clarify principles previously included in the 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the “OECD Transfer Pricing Guidelines”) in relation to four areas. Further detail on each of these topics and the implications for Financial Services groups appears below.

EU MDR

As you may have recently seen, on 25 May 2018, the Economic and Financial Affairs Council (“ECOFIN”) formally adopted rules regarding the mandatory automatic exchange of information in relation to reportable cross-border arrangements.

Changes to rules on Hybrid and Other Mismatches in draft Finance Bill 2018/19: considerations for banking and capital markets institutions

Hybrid legislation came into effect as of 1 January 2017, and was drafted closely in line with the recommendations of the BEPS Action 2 report. While the UK considered its rules consistent with the ATAD and ATAD 2[1] for the most part (which is unsurprising given these too were aligned with the Action 2 report principles), the UK government has now proposed some changes with the aim of ensuring its legislation fully conforms with the Directive requirements. Notwithstanding that the UK is scheduled to leave the EU on 29 March 2019, the UK is still proposing to adopt those minimum standards required to be implemented by Member States by 1 January 2020. (It is likely that the UK will be required to comply with the Directives during any Brexit transition period, and this period is currently anticipated to last from 29 March 2019 to 31 December 2020.)

Financial Transaction Tax Developments

Five years on since the EU Commission first proposed the introduction of a wide ranging EU Financial Transactions Tax (FTT), rumours occasionally resurface to suggest a new momentum for introduction of the tax. Differing views across Member States on the scope and form of the tax, and the practical challenges of implementing the tax as originally proposed, suggests it is unlikely that the required consensus across those Member States in support of such a tax would ever be achieved.

IFRS 16 - (Draft) Finance Bill proposed tax changes

The draft clauses of Finance (No.3) Bill released on 6 July 2018 covered the taxation of leases for accounting periods beginning on or after 1 January 2019. Despite the Government’s intention that the legislative changes proposed would ensure that the leasing rules continue to work as originally intended, the draft legislation will have a significant impact on the ‘status quo’ and place a heavy compliance burden on lessees, particularly on transition.