Tax Talks

The Proskauer Tax Blog

COVID-19: Extension of the UK’s Job Support Scheme

As lockdowns loom across the land with the introduction of a three-tier system of restrictions based on local COVID-19 alert levels, at the highest alert level (tier 3) certain businesses will be forced to close, including pubs and bars (unless they serve substantial meals).

To support businesses that are legally required to close as a result of the restrictions, the Job Support Scheme announced as part of the UK Chancellor’s Winter Economy Plan (reported by us is extended. Below are the key points:

  • The government will pay two-thirds of each employees’ salary up to a maximum of £2,100 a month.
  • Employers will still have to pay employer national insurance contributions and pension contributions; however, they are otherwise not required to contribute towards wages but can top up employee pay if they wish to do so.
  • For the extended support to be available, employees have to be off work for at least seven consecutive days.
  • The extended scheme commences on 1 November and will last for six months (with a review in January).
  • Payments to eligible businesses will be made in arrears via the HMRC claims service that is expected to be available at the beginning of December.
  • The extended scheme will apply in England and each of the devolved regions and is available for businesses that were required to close before 1 November, including premises that are restricted to delivery or collection only services.
  • Alongside the extended Job Support Scheme, the Local Restrictions Support Grant is being increased so that eligible businesses may now receive up to £3,000 per month (rather than up to £1,500 per three weeks) and businesses can now receive the grant after closure for two weeks (rather than the previous position of three). This grant supports businesses that are required to close due to local lockdown restrictions and that pay business rates on their premises.

As mentioned in our post on the Winter Economy Plan, the Job Support Scheme (including the extensions discussed above) only applies to jobs which are considered “viable” and will not be available if an employee is made redundant or put on notice of redundancy during the period the employer is claiming the grant for that employee.

Section 1446(f) Final Regulations: Key Changes to Guidance on Non-Publicly Traded Partnership Interest Transfers by Non-U.S. Persons

On October 7, 2020, the U.S. Internal Revenue Service (“IRS”) and Treasury Department released final regulations[1] providing guidance on the rules imposing withholding and reporting requirements under the Code[2] on dispositions of certain partnership interests by non-U.S. persons (the “Final Regulations”). The Final Regulations expand and modify proposed regulations[3] that were published on May 13, 2019 (the “Proposed Regulations”), and which we described in a prior Tax Talks post.[4] Unless otherwise specified, this post focuses on the differences between the Proposed Regulations and the Final Regulations affecting transfers of interests in non-publicly traded partnerships.

Enacted as part of the “Tax Cuts and Jobs Act,” Section 1446(f) generally requires a transferee, in connection with the disposition of a partnership interest by a non-U.S. person, to withhold and remit ten percent of the “amount realized” by the transferor, if any portion of any gain realized by the transferor on the disposition would be treated under Section 864(c)(8) as effectively connected with the conduct of a trade or business in the United States (“Section 1446(f) Withholding”).[5]

Prior to issuing the Proposed Regulations, the IRS had issued Notice 2018-08 and Notice 2018-29 to provide interim guidance with respect to Section 1446(f) Withholding.

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Cayman Islands removed from the EU blacklist of non-cooperative jurisdictions for tax purposes

The European Council has announced its decision to remove the Cayman Islands from the EU list of non-cooperative jurisdictions for tax purposes. In February we reported on Cayman’s inclusion on the list and our expectation that Cayman would make every effort to ensure its removal from the list in cooperation with the EU (

The Council yesterday (6 October 2020) announced that “[the] Cayman Islands was removed from the EU’s list after it adopted reforms to its framework on Collective Investment Funds last month”. The framework addresses economic substance in relation to collective investment vehicles in accordance with the OECD’s requirements. The Cayman government responded to its inclusion on the list in February by stating that it was added because of a delay in enacting legislation relating to the oversight of collective investment vehicles. This legislation has now been enacted, extending the regulatory reach of the Cayman Islands Monetary Authority, Cayman’s financial services regulator, by bringing particular funds under its jurisdiction. One impact of Cayman’s removal is that it will no longer be a “blacklisted” country for the purposes of the EU tax avoidance disclosure regime known as “DAC 6”.

The Council also announced yesterday that Oman was removed from the EU blacklist and that Anguilla and Barbados have been added.

Please contact any member of our UK Tax group if you have any queries about how the above will affect your business.

UK Chancellor announces Winter Economy Plan

As the UK braces itself for a second wave of COVID-19 the UK Chancellor has announced the Treasury’s Winter Economy Plan with the aim of protecting jobs and supporting businesses over the coming months.

Despite the measures introduced in the Chancellor’s Summer Statement (reported by us, the UK’s economic recovery “is fragile” amidst the rising number of infections. Key points to note from today’s announcement:

  • A new Job Support Scheme will be introduced from 1 November for six months with the aim of protecting “viable” jobs for those that have had to reduce their hours because of the virus. Further details as follows:
    1. the scheme is less extensive in its scope than the Coronavirus Job Retention Scheme (the furlough scheme) which it replaces as it will only be available for jobs which are “viable” and an employee cannot be on a redundancy notice;
    2. the government will top up the wages of those working at least 33% of their usual hours meaning that (a) employers will pay the wages of staff for the hours they work and (b) for the hours not worked the government and the employer will each pay one third of their equivalent salary;
    3. employees using the scheme will receive at least 77% of their usual wages (subject to the cap on the government’s contribution at £697.92 per month);
    4. the Coronavirus Job Retention Scheme does not have to have previously been used in order for an employee or employer to qualify for the new scheme; and
    5. large business will have to meet a financial assessment test and not make capital distributions, such as dividend payments or share buybacks, whilst accessing the grant.

It is interesting to note that the new Job Support Scheme is considerably less generous than the existing furlough scheme. For example, the existing scheme, in its original form, covered up to 80% of earnings up to a monthly cap of £2,500. Despite those levels being reduced over the final months of the existing furlough rules, the new scheme has a monthly cap of just under £700 by way of Government contribution and its scope is much more limited. The new scheme will represent a very considerable reduction in outflow from HM Treasury from 1 November.

  • The Self-Employment Income Support Scheme has been extended by way of two taxable grants. The first grant will cover 20% of average monthly trading profits over the period from November to the end of January. This will be capped at £1,875 in total. The second grant will cover the period from the start of February to the end of April with the government to announce details at a later date.
  • The reduced rate of VAT (5%) in the hospitality and tourism sectors will continue until 31 March 2021.
  • Under the Enhanced Time to Pay arrangement for self-assessment taxpayers, self-assessment liabilities due in July 2020 will not need to be paid in full until January 2022.
  • The temporary loan schemes (1. Bounce Back Loan Schemes, 2. Coronavirus Business Interruption Loan Scheme, 3. Coronavirus Large Business Interruption Loan Scheme and 4. Future Fund) are extended for new application to 30 November 2020. A new “Pay as you Grow” scheme is introduced under which businesses that borrowed under the Bounce Back Loan Scheme will have the option of repaying over a period of up to ten years.

Today’s announcement comes after the Chancellor’s confirmation that there will be no Autumn Budget this year.

HMRC updates its guidance on the VAT treatment of early termination fees and compensation payments

Following the European Court of Justice’s (ECJ) rulings in Meo and Vodafone Portugal, HMRC has recently updated its VAT manual and published a brief ( stating that payments arising out of early contract termination will now be treated as consideration for a taxable supply therefore subject to VAT. This marks a significant change from HMRC’s previous position that early termination payments described as compensation payments would ordinarily not be subject to VAT.

ECJ rulings

We reported on the so-called Vodafone Portugal case in the June edition of the UK Tax Round-Up ( In that case the ECJ considered that payments made by customers to Vodafone for terminating their contracts before the end of the contractual tie in period constituted consideration for a supply of services within the meaning of Council Directive 2006/112/EC (VAT Directive) so that VAT was payable on such fees. The ECJ held that the amount payable in the event of early termination should be considered an integral part of the price which the customer committed to paying to Vodafone to fulfil its contractual obligations and that the treatment of those termination fees as consideration for a supply accorded with economic reality.

HMRC updates

HMRC’s previous guidance acknowledged the difficulties of determining whether a payment is compensatory or forms part of the consideration for a supply. HMRC drew a distinction between contracts with a “right to terminate” and contracts which do not have such a right. HMRC’s previous position was that generally when customers have to make a payment to withdraw from agreements to receive supplies of goods or services such termination payments are not generally treated as consideration for a supply and were therefore outside the scope of VAT. We noted in the June Round-Up the possibility that HMRC would update its guidance in light of the ECJ’s decision. This week it has. Below are the key updates:

  • Most early termination payments will now be treated as consideration for the supply of goods or services for which the customer has contracted for. Early upgrade fees will be treated in the same way. Therefore these payments will be subject to VAT. This is the case irrespective of whether the contract contained such a “right to terminate” and whether or not the fees are described as “compensation” or “damages”. It is only where there is no direct link between a payment and a supply of goods or services that it might be outside the scope of VAT.
  • Liquidated damages are now treated as consideration for a supply. HMRC’s previous guidance stated that such amounts were outside the scope of VAT. In its updated guidance HMRC acknowledges that although such payments are aimed at compensating they arise from events contemplated under the contract therefore are consideration for what is provided under the contract. Similarly, liquidated damages payments for early termination by lessees under lease agreements for moveable goods (for example vehicle finance leases) were previously treated as outside the scope of VAT (subject to any agreement with the leasing industry that allowed lessors to treat such payments as taxable supplies). These payments are now treated by HMRC as taxable.
  • HMRC’s previous guidance stated that payments for breaches of contract which resulted in automatic termination of the contract or entitled the supplier to terminate the contract were outside the scope of VAT. Such payments are now treated by HMRC as further consideration for a supply.

HMRC’s updates are particularly relevant for businesses which have contracts with customers for minimum commitment periods and customers are subject to termination fees for withdrawal. A business that has failed to account for VAT on such fees should correct such error unless a specific ruling has been obtained from HMRC stating that such fees are outside the scope of VAT. Please get in touch with any member of Proskauer’s UK tax team to discuss how we can assist you with any of these matters.

High Court decision highlights importance of ensuring claims notices include required information

In Dodika Ltd & Ors v United Luck Group Holdings Limited, the High Court (HC) has accepted the sellers’ argument that a notice of a tax claim under a tax covenant served on them by the buyer was invalid because it did not contain the level of information required by the provision in the related share purchase agreement (SPA) governing notices of claim. This meant that the buyer could not pursue the claim because the time period for notification had passed.

The decision appears harsh to the buyer in its outcome but is a salutary reminder that purchasers should consider very carefully both the precise claim notice terms that they agree to when entering into a purchase and then, given those terms, the precise information that should be provided to the seller when a claim is made.

The case related to a $1 billion sale of a group where, under the terms of the SPA, there was a $100 million escrow in respect of possible claims under the warranties and tax covenant given by the sellers. The buyer, prior to the final repayment of amounts from escrow, sent a notice of claim letter to the sellers referring to a transfer pricing investigation being undertaken by the Slovenian tax authority in respect of a group company. Prior to this letter being sent, the sellers had been made aware of the investigation and were kept informed of its progress.

The terms of the notice of claim provision in the SPA required the notice of claim to state “in reasonable detail the matter which gives rise to [the claim]”. The sellers argued that the notice of claim was invalid because it did not include sufficient detail about the matter giving rise to the claim and that the relevant matter was not the tax authority’s investigation itself (which was referenced in the letter) but the underlying facts, circumstances and events that were the subject of the investigation (which were not included in the letter).

The HC agreed with the seller’s argument that “the matter which gives rise to” the claim in this instance was the facts, circumstances and events which were the subject of the tax authority’s investigation and agreed to the seller’s request for summary judgement that the notice of claim letter was invalid. The HC stated that a claim would not be based simply on the existence of the investigation but on the factual reasons why a tax liability accruing before completion has accrued or might accrue. Therefore, the buyer needed to include sufficient detail about those factual matters.

The case looks in detail at the purpose behind notice of claims provisions and how their wording should be construed, concluding that the general purpose is to provide the party claimed against with sufficient knowledge about the underlying facts and circumstances that the claim relates to and that the level of detail and information required to be provided will depend on the wording of the claims notice provision being considered. The reference to “the matter which gives rise to” the claim in this case (being wording seen in many SPA notice of claim provisions) required more than a statement that the tax authority was investigating the group’s transfer pricing position. It required details about the underlying arrangements that were being investigated. The HC also stated that the sellers’ knowledge of the circumstances of the claim was not relevant to whether the notice did or did not satisfy the relevant SPA provision, highlighting that the courts should be expected to be unwilling to diverge from a strict reading of negotiated documents to allow a claim to be pursued.

So, while seemingly very harsh on the buyer in this case, the decision confirms just how important it is for the parties (and particularly the purchaser) to (i) think very carefully about the notice of claim obligations that they agree to and whether the level of information requested by the seller is actually required given its presumed understanding of the affairs of the group it has sold and then (ii) ensure that the provisions of the notice of claim provision are followed strictly and thoroughly, quite possibly by providing more information than might actually be required.

The full transcript can be found here.

Coronavirus: Comparing the Tax Proposals in the HEALS and HEROES Acts

On July 27, 2020, Senate Republicans introduced a series of bills and proposals that have been collectively referred to as the “Health, Economic Assistance, Liability Protection and Schools Act” (the “HEALS Act”).[1] The HEALS Act would enhance and expand certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748), and provide additional forms of relief, including certain tax credits for employers. This blog summarizes the most important tax proposals in the HEALS Act and compares them with the Health and Economic Recovery Omnibus Emergency Solutions Act (the “HEROES Act”)[2] that was introduced by House Democrats on May 12, 2020, and the Jumpstarting Our Business’ Success Credit Act (the “JOBS Credit Act”) that was introduced by a bipartisan group of House representatives on May 8, 2020.[3]

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