Roy-Chowdhury: International tax policy should be closely aligned with the EU

IT is understandable that the chancellor wants to show that the UK is still ‘open for business’ and hinting at the likelihood of a future cut to corporation tax is a clear signal of his intent to businesses thinking about leaving the UK.

While putting corporation tax rates down and creating an overall light touch business friendly environment in the UK is a positive move, I believe that any change to international tax policy should be closely aligned with what the EU does, at least in the short term, not least because any move away from EU policy could influence the sensitive negotiations about the UK’s future relationship with Europe.

The implementation of the OECD Base Erosion and Profit Shifting (BEPS) action points will have to be aligned to what is agreed at the EU level. The European Council approved just days before the EU Referendum, on 21 June, a draft directive containing a package of anti-tax avoidance measures, including restrictions on the deductibility of corporate interest (OECD Action 4), controlled foreign company rules (OECD Action 3) and rules to tackle hybrid mismatch arrangements (OECD Action 2).

The UK government has previously shown an unequivocal commitment to lead the early adoption of the new interest deductibility rules: there now needs to be a balance between ensuring that the UK’s commitment on this front is not perceived to flag, and ensuring that the UK implementation of the rules are in line with that of the remaining 27 Member States.

Another OECD BEPS action point consistent implementation with the EU will be crucial is country-by-country reporting (OECD Action 13), enabling tax authorities across the EU to gather transfer pricing risk information on large multinational companies operating in the European single market. There is momentum within the European Commission to take this one step further, to require large multinational groups to publicly disclose their tax liabilities arising in each European member state and jurisdiction on a yet-to-be-agreed ‘tax haven blacklist’ on a country-by-country basis. For obvious reasons, the chancellor would want to avoid the UK straying anywhere near this blacklist.

Political considerations aside, preserving a close alignment with European measures is also crucial in providing some level of certainty for businesses. One example of an area where this is important is the double taxation dispute resolution mechanism. The European Commission recently launched a public consultation on improving how the mechanism operates in double taxation disputes between member state tax authorities. Given the volume of UK-EU trade, an effective, mandatory and binding dispute resolution mechanism that operates between the UK and other EU member states will be essential.

When it comes to VAT we consider that the UK might vary rates but should stay aligned to the rules of the EU 6th Directive and not consider a move to any form of sales tax or end supplier reverse charge, as has been proposed by Austria and the Czech

So, while some Brexiteers may already be talking about autonomy, the reality is there will need to be very close alignment with the EU, at least until we know more about how the UK’s relationship with it may change.

What we need now is for the UK government to put 100% of its effort into its international engagements, including, and especially, with the European Commission and European Union. Until Article 50 is triggered, we are still fully paid up EU members and we cannot take our eye off the ball when it comes to business as usual matters.

The bottom line is this: any incentives to investment the chancellor offers need above all else to be practical solutions rather than PR moves. The UK is like a full service airline rather than a low cost one, and this means it needs to call upon a full spectrum level of tax revenues. Lower corporation tax rates are well and good, but what does this mean for personal income tax and VAT rates, and what does this mean for public services?

Chas Roy-Chowdhury is head of taxation at ACCA

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