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The UK is currently in the process of resolving certain transfer pricing and taxable presence issues concerning fintech businesses. This is due to their reliance on decentralised systems, and new questions needing answers to understand what constitutes a taxable presence in a given country. Initially, an assessment has to be made as to whether or not a permanent establishment exists , which usually depends on whether there is physical presence. Nevertheless, avoidance provisions exist to prevent an avoided permanent establishment or profit fragmentation, thus requiring examination of the structures around these business models to detect any risk of triggering these measures. As opposed to traditional businesses it can be difficult in some cases to evaluate how this might be applicable for global supply chains.¹

For a regulated activity to be conducted, a link to the UK must be established as described in Section II.i. Thus, in the event that there is an international element to the services or activities, the regulatory assessment will consider precisely where they are being carried out. This will determine whether authorisation under the aforementioned process is required of the business doing them. Alternatively, a firm not engaging in any form of regulated activity in the UK can furnish services within its borders via cross-border methods or by establishing a branch office.¹

Depending on the activities carried out by the fintech business, an EU passporting regime applied to firms based in Europe who wished to provide regulated services in the UK prior to Brexit. Due to the UK's departure from the single market, passporting rights to (and from) the UK have ended automatically. While the UK and the EU continue to negotiate a wider process of adopting, suspending, and withdrawing equivalence decisions between the two jurisdictions, the UK has issued wide-ranging equivalence declarations in respect of EU members, allowing EU firms to access UK markets to the extent permitted by their home legislation. Since the TCA was signed, the EU has allowed limited equivalence for financial services in relation to the UK, while the UK has granted access to a majority of areas identified for equivalence showing to EEA Member States. Despite this, over the past decade there had been a steady rise in regulations that needed altering. Henceforth, in June 2021 the regulatory reform Taskforce proposed a common-law driven, principles-based approach to support the finance business sector by increasing their responsiveness and adaptability.¹

Fintech in the UK

Fintech in other countries

Notes

1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/spain