Corporate Taxes

 


Is it right that a company with high sales but no profits pays no corporation tax? This was a question raised repeatedly in relation to the taxation of foreign multinationals with sales here in the UK. The question, debated in places such as the Public Accounts Committee, has led to proposed reforms by the OECD, that have been accepted by the G20 and many others, in corporate tax regimes around the world in relation to how profits are calculated and allocated to activity.  But the issue is more fundamental than the international rules – it is more about the role and purpose of corporation tax. 

As Donald Trump’s inauguration day (January 20) approaches, many UK businesses which have invested in the US are awaiting further details on his tax plans, particularly those affecting multi-national businesses. In my blog on 15 November, I discussed how his proposals might affect the cash piles of US based multi-nationals; but what do they mean for UK based groups with large US subsidiaries? 

The CIOT made a submission in response to a call for evidence issued by the Economy, Jobs and Fair Work Committee of the Scottish Parliament, in respect of their inquiry on the economic impact of leaving the EU.

Public opinion in many countries has been outraged in recent years by stories of large multinationals apparently paying little or no corporation tax. This has focussed in large part on Intellectual Property (‘IP’) based planning by US multinationals – highlighted recently by the EU ordering Apple to repay €13bn to Ireland, on the basis that their tax arrangements contravened EU State Aid rules.

 

We have responded to the consultation on the Reform of the Substantial Shareholding Exemption (SSE).  

We have responded to the consultation document on Reforms to corporation tax loss relief.  The proposals to change the rules relating to loss relief for corporation tax purposes were announced at the Budget in March 2016 and outlined in the Business Tax Road Map published at that time.  Our response says that, although the changes are being proposed as part of package intended to “simplify and modernise the tax regime“, in our view there are aspects of the changes which are very complicated and, in many cases, would involve a large number of detailed calculations, meaning that simplification will not be achieved.  

The CIOT has told the Government that its proposals on whether secondary adjustments should be introduced into the UK’s domestic transfer pricing legislation should not be taken forward.  

Clause 35 Finance Bill 2016 introduces a new targeted anti-avoidance rule (TAAR) for certain distributions made on a winding up.  

In our response to the second consultation on Tax deductibility of corporate interest expense, we have said that mooted start date of April 2017 is too ambitious given the scale and complexity of the new regime. We suggested that said there is no need to rush in changes in this area because there are already a variety of rules which limit the tax deductibility of corporate interest expense, such as the Worldwide Debt Cap (WWDC) restrictions and the GAAR.

In its response to HMRC’s second consultation on proposals to introduce a new corporate criminal offence of failure to prevent the criminal facilitation of tax evasion, the CIOT main concerns are that the new offence must be subject to appropriate defences being available, that clear and unambiguous guidance is provided by the Government so that corporations understand exactly what measures they must put in place to comply, and that the measure is not used where it simply “adds to punishment”.  In our view, the proposals represent a very significant change with extremely wide ranging implications for those affected by the measure.