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UK Says Tax On Multinationals To Be Low, But Fair

by Lorys Charalambous, Tax-News.com, Cyprus

01 December 2014


In a recent speech alongside a new report that recognizes the UK's largest companies' substantial contribution to revenue receipts, the Financial Secretary to the Treasury, David Gauke, has highlighted that the Government aims to establish a fair but competitive tax regime.

Gauke was speaking alongside the release of a new report from PwC that showed that, while corporate income tax is making up a smaller portion of the mix of taxes paid by the UK's biggest businesses, the UK's largest taxpayers are essential to the UK economy's recovery and they pay considerable – and growing – revenues to the UK Government.

Gauke said: "Tax has always been crucial to how our businesses and our economies run. And tax is something people have an opinion on – and they're not afraid to express it! Especially when it is about the eternally fascinating subject of how much other people and organizations pay."

"So, in a time when tax is arguably a higher-profile issue than ever before, it's important that the policy debate is as informed as possible. For example, some people see corporation tax (CT) as a tax on large faceless corporations – abstract and slightly malign entities. And it's very easy to tap into a certain narrative about 'big bad multinationals.' That would be to forget one vital thing. The cost of corporation tax is borne by a combination of shareholders, employees, and the customer."

"Higher corporation tax tends to lead to a combination of higher prices, lower wages, and lower shareholder returns. Everybody is affected in some way. It's for this reason there is a broad consensus that CT is one of the most distortive and growth damaging taxes."

"The paying taxes survey suggests that globally, cuts in profit taxes have plateaued slightly since 2010. This is unsurprising given the fiscal challenges most Governments have faced since the financial crisis. But on competitiveness, while other countries may have paused, the UK has progressed.

"Since 2010, we have delivered record reductions in corporation tax. The rate has been cut from 28 percent to 21 percent. Next year it will be 20 percent, the lowest rate ever in the UK, the joint lowest rate in the G20. So we have taken great strides to make the UK more competitive and better equipped for the global race. And we are seeing the results. But we know that any competition needs to be fair."

"The UK Government wants an international system with fair rules that ensures all companies pay their share – a system where it isn't possible for a company to play one country off against another so it pays barely any corporation tax at all. Delivering this requires action at an international level."

In comments later in his speech, returning to the findings of PwC's report and its Paying Taxes report, Gauke said: "There are two final points I would like to make: First, we know the burden borne by business goes beyond corporation tax, and differs from sector to sector. The Tax Contribution report illustrates this very well, and it is something we are alive to as a Government. But we are committed to listening to businesses, hearing what works, what doesn't, and having a conversation about how we can become even more competitive."

"At Autumn Statement last year, businesses told us their biggest concern was business rates. We listened, and we launched a GBP1bn (USD1.57bn) Business Rates package with particular help for the retail sector. At Budget this year, meanwhile, businesses told us their greatest concern was energy prices. Again, we listened, and launched a GBP7bn package of measures to reduce energy costs for households and businesses, which included specific support for energy intensive industries. We are a listening Government – and where necessary we will act."

"The second point I would like to make is this: we still have a long way to go. The report shows how your tax contributions roughly mirror the trajectory of the economy... Your businesses, the jobs and investment you provide, the sales and activity you generate, and the taxes you pay, will have a major role to play in securing this growth."

Gauke's speech came shortly after the publication on November 12, 2014, of a report that explained the efforts from HM Revenue and Customs (HMRC) to work with other countries to amend the international tax rules on multinational companies.

Entitled "Taxing Multinationals: Tackling Aggressive Tax Planning," the HMRC report notes that the UK rules for taxing multinationals are based on a commonly agreed set of international standards, which have not changed since they were agreed in the 1920s. As a result, the report states, multinationals can plan their tax affairs in a way that separates their profits from the economic activities that generate them.

The report underlines three broad strategies adopted by the HMRC to combat tax avoidance including:

  • Working with other countries and tax authorities to combat aggressive tax planning;
  • Exchanging information with other tax administrations for greater transparency; and
  • Using advance pricing agreements (APAs) to provide certainty on taxable profits.

The report highlights the importance of tax information exchange in meeting the HMRC's objectives. It states: "Exchanging information…means there is greater transparency about multinational ownership of assets and the location of their profits… Multinationals based in the UK will have to tell us where they make profits and pay taxes around the world. This information will help us to assess better where there are risks to collecting the tax that is due and where to focus on countering tax avoidance."

Last, on tax rulings, the report states that APAs will only be issued after the HMRC has thoroughly assessed the facts and decided if a ruling is appropriate. APAs will also be regularly reviewed to ensure that businesses meet the terms contained in the APA, the report concludes.

TAGS: compliance | tax | investment | business | tax compliance | tax avoidance | revenue guidance | law | Organisation for Economic Co-operation and Development (OECD) | corporation tax | United Kingdom | enforcement | tax authority | offshore | agreements | multinationals | legislation | tax planning | transfer pricing | HM Revenue and Customs (HMRC) | G20 | tax reform | standards | regulation | HM Revenue and Customs (HMRC) | Legislative Scrutiny | legislation amendments | trade | European Union (EU) | business investment | Europe | Work | Tax

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