Employment and Business Law Update
In the newsletter we will discuss:-
1. Simplification of tax in relation to Settlement Agreements
2. Court of Appeal upholds blocking of websites that infringe trademarks
3. Apple Tax Fiasco and the E
1. Simplification of Settlement Agreement Tax
First and foremost I must say I never found the regime difficult to understand. I cannot help feel although we have full employment (in theory); the reality is that we are not collecting sufficient taxes and by any means necessary the government is trying to raise more funds because we need the money.
The new rules will come into force April 2018. The consultation has not finish so there are likely to be further changes. For employers who from time to time use settlement agreements; it is prudent to keep an eye out for any additional changes.
1. Under £30,000 tax exemption
The tax exemption regarding payments under £30,000 will continue to apply. For junior staff this payment is the norm. Senior staff are usually paid over £30,000.
Contractual or non-contractual payments over the sum of £30,000 will be subject to income tax as normal.
2. National Insurance Contributions
National insurance must be paid in relation to any income earned under a contract of employment. It is not paid at present in respect of any settlement payment over £30,000; as only income tax is applied. Under the new regime, sums paid in excess of £30,000, will attract income tax and NI.
This is good for HM Inland Revenue as they get more money, however it will cost employers more to get rid of senior staff.
3. Payment in lieu of notice (PILON)
The rule was that only income tax, not NI had to be paid. The simplification rule means that both NI and tax will have to be paid on any PILON provision after April 2018. This simplifies matters.
2. Court of Appeal upholds blocking of infringing websites
Working in an industry where infringing copies are sold online using a website has just become more difficult in the UK.
In the case of Cartier International and others v Sky, BT, EE, Virgin & Talk Talk (2016) EWCA Civ 658 . The five internet service providers (ISP) were appealing against orders made in the High Court which stated that they must block websites that infringed the registered trademarks of the Claimants (collectively known as Richemonts). The trademarks being infringed related to Cartier, Mont Blanc, IWC and other well-known brands. The order also stated the ISPs must pay for implementation. Due to the fact that they were the unsuccessful party, the ISP’s were also forced to pay the legal fees of the claimants.
The ISPs (Applicant’s on appeal) appealed on the basis that the order of the lower court was too wide and that they had done nothing wrong. The lower courts had exceeded their jurisdiction. The Court of Appeal upheld the decision of the lower court ordering the ISP to be legally responsible for blocking the websites of the infringers. In particular the judges up held paragraph 35 of the Judgement of Arnold J, in the high court.
This is a great decision for trademark owners where counterfeit of their goods are being sold online. The courts will protect the rights of trademark owners and order the ISP to pay the costs if they are unsuccessful in any claims that are defended. Thus ISP, should be more cooperative and help to pull down infringing website selling counterfeit goods.
3. Apple Tax Fiasco
The European Competition Commissioner Margreth Vestager stated that Ireland had granted tax benefits of 13 billion euros (£11 billion) to Apple. Notwithstanding high profits, Apple paid significantly less tax than other large corporations. Corporate tax in 2003 was 1% and by 2014 it was 0.005%. This means that Apple pay 50 euros for every million pounds worth of profit (do not swear!!!).
Apple tax arrangement is that it has ‘Apple Sales International’ and ‘Apple Operations Europe’.
In terms of Apple Sales International (based in Ireland), the Apple products sold in stores throughout Europe result in a contract between the consumer and Apple Sales International in Ireland rather than in the country of purchase. Thus all profits are allocated to Apple Sales International. The tax arrangement Ireland has is that Apple are taxed on the profits it makes in Ireland. However the European Commissioners view is that although all European profits go to the Irish Companies, instead of all profits being taxed; only the profits made in Ireland are taxed. The other profits (from for example Apple stores in England and France) are channelled away from Ireland to a “head office”. The head office is a separate subsidiary. The head office is not based in a country. It does not have employees or its own premises. Once in a blue moon it has board meetings. Therefore only a small percentage of Apple’s Europe profits are taxed in Ireland.
A similar model exists for Apples Operations Europe.
The Commission therefore felt that the tax rulings issued by Ireland endorsed the artificial allocation of profits within Apple Sales International and Apple Operations Europe which has no factual or economic justification. The tax rulings enabled most of the sales of Apple Sales International to be allocated to its ‘head office’ when the ‘head office’ was simply a sham (my words). The Commission concluded that the tax arrangement is illegal under EU state aid.
Ireland disagrees with the Commission assessment.
Apple now argues that the decision will have a profound impact on work and jobs (5,500) in Europe. Apple proposes to appeal the decision.
This multinational corporation appears to be simply using a complex corporate structure to avoid tax. I understand that MacDonald’s and Amazon are also on the radar. The appeal outcome will be worth waiting for and in the interim what is clear is that: companies (large or small) need to understand that ‘aggressive tax planning’ is under review and may be deemed illegal!