Scottish replacement to Air Passenger Duty - CIOT comments
This legislation will translate into statute a specific policy intention, which is to prevent the reduction of tax liabilities by multi-national enterprises by the use of hybrid instruments and entities. The CIOT supports the policy intention. Our comments are thus focused on whether the legislation translates the policy intention into statute accurately and effectively and without unintended consequences.
In this regard we have concerns that the provisions may apply in normal commercial situations and have a number of unintended consequences for branches where there is no mismatch involved. Additionally, the provisions go beyond the scope of the actions recommended by the G20/OECD‚ s BEPS project. Where they do so, whilst they may counteract arrangements that lead to base erosion, the counteraction may be disproportionate to such an extent that it calls into question whether this is the right legislative response.
Our concerns largely relate to the most recently published additions to the legislation concerning hybrid instruments regarding permanent establishments, which bring into scope more arrangements involving transactions for goods and services. We would not argue that the base erosion arrangements involving goods and services should not be tackled, but we believe it is likely that there are more appropriate methods that could be employed than those in this legislation and suggest what these alternatives may be.
Finally, to the extent that the provisions may conflict with European law, the provisions may not be effective and will create legislative uncertainty, and we have also thus commented on this aspect.