PwC Warns Over Implications Of UK Corporate Tax Reforms

by Robin Pilgrim, LawAndTax-News.com, London

15 August 2003

Accounting and professional services provider, PricewaterhouseCoopers has warned that changes to the UK's corporate tax regime flagged up in the consultation document on the subject released by the government earlier this week may significantly impact on the country's businesses, both in terms of cost and extra administration.

The Inland Revenue announced this week that following several legal decisions in Europe which have cast doubt on UK subsidiaries' exemption from arm's-length pricing: "The Government proposes to extend the scope of the transfer pricing legislation to transactions between all related enterprises, even where both are in the UK.'

However, according to PwC:

'A direct consequence of such a requirement to use arm's length prices within the UK is likely to be a very substantial increase in the administrative burden of many UK groups of companies from the smallest groups to the largest.'

'If the levels of documentation and support which are required for cross-border transactions have to be applied to the much larger volume of intra-UK transactions, then it would not be unreasonable to suggest an increase in the administration costs of the worst affected UK companies by 10% or more.'

PricewaterhouseCoopers also drew attention to the suggestion that in a finance lease transaction, the capital allowances should be afforded to the lessee as economic owner, rather than to the lessor as legal owner, arguing that this is likely to adversely affect inward investors and other businesses in the early years of their operation.

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