Press Room

18 Oct 2019

Media Roundup – October 2019

Andersen – Media Roundup

Welcome to this, the first media roundup of Andersen.

Miles Dean, Head of International Tax, outlines the arguments for the abolition of inheritance tax in The Times, and argues in Accountancy Age that companies like Netflix are unfairly targeted by the media for their tax record, despite providing huge investment to the UK.

Andrew Parkes, international tax specialist, discusses withholding tax, Brexit and double taxation agreements (DTAs).

Happy Reading!

Inheritance tax is unfair and should be abolished

Miles Dean is Head of International Tax at Andersen LLP. He advises privately held multinational companies, entrepreneurs and high net worth individuals on a wide range of cross border tax issues.

It has been widely reported that the chancellor, Sajid Javid, is open to scrapping inheritance tax and momentum is building from experts to support that view.The concept of economic double taxation is one that the Organisation for Economic Co-operation and Development has sought to address in a commercial context by implementing treaties that are central to international trade and commerce, the idea being that the same profits should not be taxed twice as this would be a hindrance to businesses and profoundly unfair.

The same applies to inheritance tax. As a principle it is abhorrent that the state imposes a tax on death, an event that we have no control over.

Paying income tax on earnings that are then used to acquire assets that may subsequently be sold is politically, socially and ethically sound. Taxing wealth on the event of death, however, is a concept that is anathema to most people.

Any tax must have a social purpose. In the case of inheritance tax it is difficult to come to any conclusion other than it is simply a tax on the rich, namely those who can afford it.

However, this is not correct. The tax is applied at the rate of 40 per cent on an estate in excess of £325,000.

There are numerous allowances and reliefs, the effect of which is to reduce or eliminate the headline rate. Consequently, inheritance tax seeks only to affect cash, investments and homes, assets that have invariably been acquired using taxed income. To subject those assets to a further 40 per cent tax is egregious, bearing in mind that the average house price in Britain is £233,000 and £478,000 in London.

It cannot be right that people whose wealth is primarily tied up in their homes are often forced to take action before their deaths to fund the impending tax.

If inheritance tax is not abolished, an alternative must be considered. The nil rate band should be significantly increased and the rate reduced to less than the 40 per cent rate of income tax so that the tax applies only to the wealthy.

In the United States the official estate and gift tax limit for 2019 is $11.4 million per person. This difference is staggering and while it is understandable given the fabulous levels of wealth in that country, the principle of ensuring that the tax applies only to individuals with what we would describe as significant wealth is sensible.

The reality is that the super-rich in Britain, including non-doms, have the means to structure their estates in such a way that paying inheritance tax is often said to be optional.

Given that the Treasury forecasts that the tax will raise £5.3 billion this financial year — which will account for only 0.7 per cent of receipts — the case for abolishing the tax is without doubt. 

This article was first published in The Times

Miles Dean
If you wish to discuss any of the above, please contact Miles Dean on +44 20 7242 5000 or

Media furore over corporate tax targets Netflix

The media’s obsession with companies and the effective rate of tax they pay knows no bounds. Its latest target, is Netflix. The fourth estate must remember that it is it important to distinguish between the delivery of content to users on the one hand and the physical activities that are taking place in the UK on the other hand. It also shouldn’t take the mind of a Jedi Knight to understand that when Netflix pays hundreds of millions of dollars for American made shows such as Friends and Seinfeld, part of the UK subscriptions are due to the US.

Claims that Netflix achieves its tax efficient structure as a result of a complex corporate arrangements are nonsense. There are parts of the structure that are, of course, complex (tax is by its nature complex), but Netflix is a US business, headquartered near San Francisco and listed on the NASDAQ. The service it sells is an intangible. It doesn’t require a physical place on the high street where customers can buy their products, nor “fulfilment centres” with a fleet of delivery vans clogging up the roads.

Freebies from the UK

Reporters also have to realise that Netflix is making use of two tax breaks given by the UK, the first of which goes against the international standard. Netflix’s UK customers contract with Netflix BV, a Dutch company that uses UK based servers to provide its streaming services. The guidance from the OECD makes clear that these servers may be taxed as if they were the same as an office or shop selling physical goods, but the UK has opted out of this system. It has decided not to tax the UK profits of Netflix BV.

It is almost certainly this guidance from the OECD’s that is Italy’s basis for taxing Netflix. They will be able to tax the profit Netflix makes from supplying its programmes to Italians. Although, as Netflix will be able to deduct the relevant proportion of those hugely expensive US programmes from the bill, the Italian profits may not be as big as Italy hopes. Still more than the UK has decided to tax though.

Another approach is the one taken by the French. They have a levy upon video and DVD rentals in order to support their domestic film industry. With the decline of the video and DVD rental industry (Blockbuster anyone?) the levy was extended to streaming services such as Netflix and Youtube in 2017. This is set at 2%, but it does seem to have caused them to be exempted from the French Digital Services Tax (and as that is 3%, they have a saving!)

Even more goodies from the Government

The activities of the UK company that provides customer services to the UK market are separate, taxed accordingly and led to the ire of the mainstream media. Again, this is misplaced as Netflix is complying with a Government initiative to bring investment into the UK.

The UK has a very successful incentive for the film and TV industry, supporting 132,000 jobs and yielding £2bn in tax in 2016, according to the BFI. The films and TV tax reliefs allow companies that make films and programmes in the UK to double many of their production expenses and, if that results in a loss, the company can sell them to the Government for a tax rebate.

Is it any wonder that with double expenses, Netflix has been able to claim some tax back? Also, as Netflix has committed to spending £232mn on Shepperton Studios and has spent over £400m on producing shows in the UK in the past 9 months, with undoubtedly more to come, I wonder what the headlines will be next year? Will they mention the 25,000+ plus jobs created by the company, the taxes paid by those people, the investment in the UK or that the low tax rates are due to tax breaks promoted by the UK and supported by the BFI, or will they harp on that Netflix has not paid their “fair share”?

Give with the left and take with the right

So, the issue is striking the right balance. On the one hand does the UK want to tax businesses and individuals based upon some nebulous concept of “fair” taxation, that changes depending on what mood the newspaper editors are in, or does it accept that in this digital age companies can choose from where they supply their services and instead settle for foreign investment from the likes of Netflix, Google and various others, all of whom, for the time being at least, see the UK as a stable, vibrant place to do business.

Sadly, it appears the Government hasn’t worked this out yet, with the tax reliefs mentioned above promoting the UK for digital companies, then the Diverted Profits Tax and the Digital Services Tax hitting them. We await the next headline to inform Government policy.

This article was first published in Accountancy Age

Miles Dean
If you wish to discuss any of the above, please contact Miles Dean on +44 20 7242 5000 or

Withholding tax and Brexit

Andrew Parkes is a highly experienced international tax specialist who worked at a senior level in HMRC’s international teams for over 10 years. He  has a wealth of experience and technical knowledge.

What’s the story Tobermory?

When businesses trade across borders, two countries may want to divvy-up the taxation spoils. The first, is the country in which the income is earned (the Source State), whilst the second is the country in which the business is based (the Resident State).

As it is difficult for the Source State to tax the income, given that it flows from the customer to the trader without going anywhere near the governments, they often levy withholding tax (WHT) upon payments made to non-residents. These can be very expensive for the trader, as WHT is usually levied upon the gross payment, whereas their profit on the transaction is usually on the net amount and this is subject to tax in the Resident State leading to double taxation.

Countries have entered into many bi-lateral double taxation agreements (DTA) to alleviate this problem. DTAs do this by allocating most taxing rights to the Resident State unless it has a taxable presence, a permanent establishment, in the Source State. This stops WHT on most business profits.

However, DTAs do give the Source State the right to levy WHT upon cross border payments for sources of income that are usually pure income profit (to borrow a UK taxation phrase) in the hands of the recipient. This is usually dividends, interest and royalties. Domestic rates run all the way from 0% to 35% (with France even managing 75%) and DTAs bring them down to around 0% to 15%.

As well as DTAs, the EU got in on the act and, as part of the single market, said that payments between connected companies in different Member States should not suffer WHT. Hence, the Interest and Royalties and the Parent Subsidiary Directives were born. These two directives stop WHT being levied on many payments between connected companies.

For the Interest and Royalties Directive, the definition of connected is quite narrow, as it is only where one company has 25% of another, or a third company has 25% of both, but not any wider. Further, and not unreasonably, all of the companies must be within the EU. For the Parent Subsidiary Directive the connection is 10%, plus, of course, it only applies to the payer and the recipient company! Also, the directives do not apply to EFTA members.

Don’t look back in Anger

As the Directives are from the EU, they are within the scope of any turmoil following Brexit. However, and possibly much to the chagrin of Messrs Farage and Rees-Mogg, any immediate problems are likely to be UK companies awaiting payments from Europe and not any European companies awaiting payments from the UK!

The “Great Repeal Bill”, or to give it its proper name the European Union (Withdrawal) Act 2018, is now waiting in the wings to give effect to Brexit. This Act, although it repeals the European Communities Act 1972, actually ensures that EU legislation that applies directly to the UK is incorporated into UK law. It also ensures that UK legislation based upon other types of EU legislation, such as EU Directives, is preserved.

The principle is that the totality of UK law will be the same, both before and after, Exit Day. In other words, legislation covered by the Great Repeal Bill will work exactly the same post-Brexit as it did pre-Brexit.

For withholding tax purposes, this means that the UK legislation giving effect to the EU Interest and Royalties Directive (IRD) will still be effective and unamended once we leave the EU. For groups that are investing into the UK, this will be a relief. For example, a fashion house holds its intellectual property in its design company in Italy and the UK operating subsidiary pays royalties to the Italian company. At the moment, as long as the UK company “reasonably believes” that the Italian company is within the terms of the Interest and Royalties directive, as transposed into UK law, they can pay the royalties without any WHT. Based on the Great Repeal Bill, this will not change after Brexit.

However, for UK headed groups, they will be reliant upon the legislation of the other country. Consider a group where the royalties are being paid by an Italian company to a UK company. Prior to Brexit, the Italian domestic legislation implementing the Interest and Royalties Directive allows the Italian company to pay the royalties gross. However, post-Brexit, they will not be able to do so. This is because the Italian legislation (Legislative Decree 30 May 2005, No 143 in case you were wondering) only applies to payments to a company within the EU, and post-Brexit, that is not the UK.

This is what is likely to get Brexiteers hot under the collar: the UK company can pay money to companies within the UK “tax free”, whereas Europeans will have to deduct tax upon payments made to the UK!

Roll with it

DTAs will come to the rescue in many situations, especially for royalties, as the trend is for DTAs to reduce WHT to 0%, but not all. The reason Italy was picked for the example above, was that the Italy/UK DTA only reduces WHT on royalties to 8%. Helpfully, some countries do not levy WHT on certain income sources, such as the UK on dividends or Luxembourg on interest and royalties.

That WHT has been deducted is not the end of the story. As well as reducing the rate of WHT, DTAs also allow for the recipient to claim double taxation relief if it is not due unilaterally. However, the UK exempts most dividends negating the need for double taxation relief. This does, though, turn WHT into a cost.

Again, dividends paid from the UK do not suffer WHT although, as mentioned, that is a general provision and not due to the Parent Subsidiary Directive. However, a UK parent company receiving dividends from its German subsidiary, prior to Brexit, will be able to rely upon the German domestic legislation implementing the Parent Subsidiary Directive, to reduce any WHT to nil. Post-Brexit, the UK will not be a Member State and this domestic provision will no longer apply, as it too only applies where the recipient of the dividend is an EU company. The UK company will have to rely upon the Germany/UK DTA which reduces WHT on such dividends to 5%. Assuming that the distribution exemption applies, the UK goes from receiving 100p in every £1 to 95p. It doesn’t sound a lot, but it will mount up.

Over time, the UK’s domestic legislation will either be amended, or fail to keep up with changes made to the two directives and so UK payers will be able to rely upon them less and less. But for now, Brexit is having a one way effect on

WHT and not in a way expected by Brexiteers. Steps could be taken to level the playing field, by repealing the enabling legislation, but that is hardly showing that the UK is open for business – increasing the costs for foreigners investing in the UK.

Andrew ParkesFor more information please contact Andrew Parkes on +44 20 7242 5000 or