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The UK’s corporate tax set-up “urgently needs reform” to put a halt to the “serious problem of avoidance” it faces, according to a new parliamentary report.
The system’s complexity and inconsistencies with the wider international tax framework undermine the public’s trust by allowing big companies to shift profits between countries in ways that reduce their liabilities in the UK, claims the document from the House of Lords’ Select Committee on Economic Affairs.
The UK’s corporate tax set-up “urgently needs reform” to put a halt to the “serious problem of avoidance” it faces, according to a new parliamentary report.
The system’s complexity and inconsistencies with the wider international tax framework undermine the public’s trust by allowing big companies to shift profits between countries in ways that reduce their liabilities in the UK, claims the document from the House of Lords’ Select Committee on Economic Affairs.
It goes on to recommend that the Treasury “urgently” review UK business taxation and propose within a year changes to be made at home and pursued internationally to reduce avoidance, recover revenue, level the tax playing field between UK-based firms and multinationals, and restore trust in the corporate tax system.
The cross-party group of peers suggests that the Treasury considers other approaches to the taxation of multinationals’ profits, such as a destination-based cash flow tax, and re-examine fundamentals of the country’s regime, including differential tax treatment of debt and equity and the scope for introduction of an allowance for corporate equity.
In response to recent controversies concerning HMRC’s dealings with big business – particularly the alleged ‘sweetheart’ deals with telecoms group Vodafone and the investment bank Goldman Sachs – the select committee’s report recommends that parliament establish a joint committee of MPs and peers to exercise “greater oversight” of the Revenue and the settlements it reaches with multinationals.
There are fillips for the tax department, too: disclosure of tax avoidance schemes, anti-arbitrage rules and the general anti-abuse rule (GAAR) are all broadly welcomed, and it is suggested that the government look at how it can strengthen statutory measures available to HMRC to combat avoidance and arbitrage arrangements.
The document – titled Tackling Corporate Tax Avoidance in a Global Economy: is a New Approach Needed? – acknowledges the UK and the G8 support for the global action plan to tackle base erosion published early this month by the Organisation for Economic Cooperation and Development (OECD).
But the peers cast doubt on the efficacy of the OECD’s two-year programme and warn that the UK “faces the prospect of losing much-needed revenue through avoidance of corporation tax” in the meantime because “the present system is not working”.
