Friday, June 05, 2009

UK Treasury may scrap anti-tax-avoidance measure

Thanks to our colleague Paul Sagar, who first raised the alarm on this, an important story has appeared in The Guardian. We hope they don't mind if we reproduce it in full:

"The government's much-vaunted crackdown on corporate tax avoidance risks being seriously undermined by the repeal of a measure that forces multinational companies to inform HM Revenue & Customs when they move money offshore, tax campaigners warned today.

Unnoticed as part of the budget's tax proposals was a Treasury announcement repealing section 765 of the Corporation Tax Act. In addition to forcing companies to seek permission from the Revenue before moving cash offshore, it allows tax investigators to ask them whether moving money out of the UK is to the Treasury's detriment. It also produces information associated with companies' overseas tax and equity structures.

Section 765 has been cited by Revenue investigators as a vital tool in combating corporate tax avoidance, which costs Britain an estimated £13bn each year. But it has long been targeted for repeal by business and major accountancy practices.

The proposal will be debated by MPs next week as part of the finance bill and is the subject of a Liberal Democrat amendment. Their Treasury spokesman, John Pugh, said: "Section 765 has proved extremely useful in preventing tax avoidance, which [is] why the corporate sector has lobbied incessantly for its repeal. If the finance bill passes in its present form, the government will be surrendering a major weapon in the anti-avoidance arsenal and getting nothing in return. The tax avoidance industry will be partying in the streets."

The Treasury plan is for details of cash movements to be reported after the event, denying investigators "real-time" information. Previously, failure to inform the Revenue if money was going offshore could result in a prison sentence. Now, failure to report after six months will cost £300 plus £60 a day for every day of non-reporting.

The likely ditching of a significant anti-avoidance measure has angered revenue insiders, particularly as the government launched what it said was a £4bn crackdown on corporate tax avoidance schemes in the budget. The move came amid growing international pressure for action on tax havens and tax abuse.

To plug gaping holes in the public finances, Alistair Darling increased the power of Revenue inspectors and placed new duties on senior executives to ensure large company tax returns are accurate.

Today the Treasury said: "The government is … introducing a more modernised and targeted rule to ensure that both tax revenue is protected and businesses can reduce their administrative costs. This change will simplify the rules on taxing foreign profits and will enhance the attractiveness of the UK as a location for multinational business."

The government argues that replacing section 765's consent-based rules with a post-event reporting requirement targeted at high-risk transactions will produce better results. It says section 765 is old-fashioned and denies the move has followed heavy pressure from business groups and accountancy firms."


Blogger Physiocrat said...

The UK government has done nothing about the avoidance of UBR through "constructive demolition". There was a consultation and they concluded it would not be an issue. They were wrong. It has become an issue.

At least UBR cannot be avoided through the use of offshore tax havens. They ought to collect more from that direction - they used to until the days of Thatcher when they started with "rates holidays" which were immediately absorbed in higher rents.

1:49 pm  

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