Institute Of Directors Responds To UK Business Tax Paper

by Jason Gorringe, Tax-News.com, London

23 July 2001

The UK Institute of Directors responded to the Government's issue of the consultancy paper 'Large Business Taxation: The Government's strategy and corporate tax reforms' somewhat ambivalently last week, saying that although the government's stated aims were praiseworthy, the biggest single issue for the corporate tax system had not been fully addressed.

'The Government is right to lean towards an exemption for gains on substantial shareholdings rather than a deferral,' said Richard Baron, the Deputy Head of the Policy Unit at the Institute of Directors. 'Having said that, there are several detailed issues to resolve. [However] the Government's concern that an exemption might be used to avoid the tax charge on companies leaving the UK must not be allowed to spawn complicated anti-avoidance legislation, which would impede legitimate group restructurings.'

In Mr Baron's view, the Government has failed to address in sufficient detail the issue of whether the UK should make the change from taxing foreign dividends, with credit for tax suffered abroad on the profits made or on the dividends, to exempting foreign dividends. He says that although there is a long list of the potential disadvantages of making this change, the advantages are not properly explored within the consultancy paper.

However, the Institute of Directors believes that in the final analysis, the UK may have no choice in the matter. 'European law may force the UK to exempt dividends from other European Community countries, simply because UK dividends are exempted there,' observed Mr Baron. 'The paper does not discuss this legal threat at all. If a change will be forced, the UK would do better to plan for it now so as to give time to re-negotiate tax treaties as required.'

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