The private equity industry has told the Inland Revenue to expect a court challenge if it does not back down on ‘seriously damaging’ changes to tax laws.
In a letter to the chancellor, John Mackie, chief executive of the British Venture Capital Association, wrote of ‘the level of distrust’ the Revenue’s move had ‘now introduced’ as well as the potential for ‘serious damage’.
At the heart of the row lies the Revenue’s reinterpretation of existing tax laws. This emerged after it changed certain rules before this year’s March Budget. The changes will raise £5m in 2005, rising to £20m in 2007, however, the figures pale into comparison by the tax regulator’s latest approach, which could cost the industry around £400m a year.
In his letter Mackie added that the moves could ‘well be a deterrent to the private equity industry to continue to increase its investment in the UK’. ‘I would urge you to ensure any [change] you deem appropriate is not given retrospective effect’, he added.
A Treasury spokesman told the Daily Telegraph that it was ‘right that these companies should pay what is due under the law, the same as other taxpayers’. ‘The [new proposals] should encourage companies to finance their deals for the right reasons – economic benefits not tax avoidance,’ the spokesman added.
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