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10 Dec 2012
EUROPEAN PLANS to crack down on tax avoidance have been welcomed by the ICAEW's chief executive.
In his blog, Michael Izza (pictured) says that the EC's plan to fight tax dodgers – badged as a 'Fight Against Fraud and Tax Evasion' – through the use of information sharing and general anti-avoidance rules is a "real opportunity" to create a consistent and fair approach to corporate and personal tax.
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"We need a system that allows businesses to do what they are best at doing; creating useful products and services, and making profits, while contributing fairly to society," said Izza.
He said that the current tax system was set up at a time when "business was much simpler". Concerns now abound about the erosion of the tax base due to its "policing" through transfer pricing and the arm's length principle.
The institute sparked controversy earlier this year by taking a strong stance against aggressive avoidance, outlining to members where it believes they could fall foul of its rules about peddling certain types of tax scheme.
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Rifles Not Shotguns Please!
In my view, few in the business world do not support HMRC vigorously pursuing and defeating tax fraud, tax evasion and the abusive, typically pre-packaged tax schemes now widely marketed (but,of course, generally defeated in the tax courts).
We must, however, all speak up to resist the temption to treat all Jacobin style accusations of tax avoidance as being proven merely by being made. In principle, there are very sound, bona fide, acceptable and indeed just reasons for payments of royalties, interest and other intragroup payments. Even if none of these payments have been made, there are numerous reasons why taxable profits may be much less than accounting profits, notably government incentives for capital expenditure.
Sadly, I am sure that there are already multinational business and entrepreneurs who will be wondering whether establishing a business in the UK is no longer worthwhile if their tax liabilities may not precisely track turnover. The consequence if this continues will be fewer businesses, higher unemployment and, yes, lower tax receipts to finance public services.
Posted by: Stephen Herring, Senior Tax Partner, BDO LLP, 10 Dec 2012 | 11:22