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Diverted Profits Tax To Undermine UK Economy: ACCA

by Lorys Charalambous, Tax-News.com, Cyprus

15 December 2014


The Association of Chartered Certified Accountants (ACCA) has said the UK has jumped the gun in announcing a Diverted Profits Tax (DPT), urging UK policy makers to instead wait out the completion of the Organisation for Economic Cooperation and Development's (OECD's) base erosion and profit shifting (BEPS) work.

In the recent Autumn Statement, the UK Government announced that a 25 percent DPT would be introduced from April 2015 to tackle artificial profit shifting arrangements that have the effect of reducing profits taxable in the UK.

Responding to the Government's announcement, Chas Roy-Chowdhury, Head of Taxation at the ACCA, said that the DPT is a "highly aggressive piece of legislation."

"The process will be for the MNC to report itself to HMRC, a form of Disclosure of Tax Avoidance Schemes, and then somehow argue against that reporting once HMRC have imposed the 25 percent charge. We could understand if HMRC imposed a DPT charge against the MNC and the company had to then disprove this, but we find it reputationally damaging to the UK where the company has to effectively incriminate itself upfront and then argue its way out of the situation."

Chowdhury continued: "Additionally, just because the UK says the DPT is not corporation tax, this does not mean that other jurisdictions will accept it as such. We cannot see mutual agreement being obtained from all the UK's double tax treaty partners, and hence subject to rules outside of the UK's treaty obligations. We see these rules – which have been devised to bring into the UK around GBP1bn (USD1.57bn) of economic activity – being challenged by the MNCs; it impacts as being extra-territorial and wrapping-up the UK in significant levels of litigation."

"While we welcome the measure in principle, we need to ensure [that the] legislation does not drive away global companies from doing business and from making tax contributions to the UK Exchequer through the basket of taxes they already pay."

"It would perhaps have been more productive for the UK to have waited for the OECD to have completed its work on BEPS, which will be finalized by the end of next year, before producing this legislation. The UK has jumped the gun and might pay a high cost in realizing even close to a billion pounds or so in extra revenue over a five-year time horizon. Could this be a case of too much too soon?" Chowdhury concluded.

TAGS: compliance | tax | investment | business | tax compliance | tax avoidance | revenue guidance | law | international financial centres (IFC) | Organisation for Economic Co-operation and Development (OECD) | corporation tax | United Kingdom | enforcement | agreements | multinationals | legislation | tax planning | transfer pricing | tax reform | Legislative Scrutiny | legislation amendments | trade | European Union (EU) | Europe | Tax

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