Call for taxman to drop revenue neutral ‘straitjacket’

A leading tax adviser has urged UK tax authorities to drop their revenue
neutral ‘straitjacket’ and accept that reform may cost the exchequer money in
the short-term.

In the wake of the proposed controversial changes to taxing foreign profits,
Chartered Institute of
spokesman John Whiting pushed for rulemakers to take the same line
as big business and think about the long-term benefits.

‘The tax authorities have got to get rid of this “revenue neutral”
straitjacket,’ he said. ‘The starting point seems to be that reforms have to be
revenue neutral. Businesses understand that you have to invest to make money and
perhaps the government should take the same view. You can’t have a tax system
where you’re handing out cash willy-nilly, but you must also spend a pound to
raise a pound sometimes.’

His comments came in the wake of United Business Media and Shire dropping the
UK as a tax base. The departures led to Alistair Darling scrambling to keep plcs
from following suit by setting up a business-government tax forum last month.

The latest CFC changes, to clamp down on companies keeping assets such as
intellectual property in low tax regions and setting up offshore treasury
functions, were made to try to smooth out the loss to the exchequer from the
dividend exemp- tion. Under the exemption, corporate gains made in low tax
regions will not be hit by UK taxation.

Chris Sanger, head of tax policy at Ernst & Young, said that while being
revenue neutral was prudent, the taxman was taking too cautious an approach in
some cases.

‘There’s a real question as to whether [the tax authorities] concerns with
issuing the dividend exemption will actually come to pass.’ In terms of
repatriation of funds onshore, the foreign profits exemption would actually
benefit the UK, Sanger said. ‘I think it’s important that the upsides are looked
at as well as the downside.’

Whiting added that it would be a major boost if the authorities eased the
compliance burden. ‘If I spend a pound to raise 90p and also cut 10p in admin
costs then I would also see that as revenue neutral. More attention needs to be
given to the admin costs of taxpayers.’

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