Corporation tax proposals blasted

The document, released last week, aims to modernise the UK tax system as well as bring it more in line with European law. But experts doubt it will succeed. ‘The government has ducked the issue of Europe. When we are talking about such a major reform of the tax system, we ought to put everything into the pot,’ said Chris Morgan, head of the international tax group at KPMG.

David Nickson, tax partner at Ernst & Young, said the government had flagged up just four areas in need of reform, out of the 25 areas of UK tax legislation that are in direct contravention of the EC treaty.

‘Rather than be proactive, it seems the Inland Revenue has waited for the taxpayer to take the case to the European courts. We would like to see a more radical approach,’ he said.

The government is clearly determined to prevent any loss of tax receipts as a result of conflicts with the EC Treaty. ‘The corporation tax system has to meet the challenges of a competitive international environment and must also be kept robust against any legal challenges under EU law,’ read the document.

But the solution provided is to impose regulations on companies trading in the UK, so the same rules can no longer be deemed discriminatory against those trading across borders. This, according to Nickson, would impose severe levels of red tape on smaller companies and create an ‘administrative nightmare’.

But while agreeing that the document does not really address the issues of Europe sufficiently, Derek Jenkins, tax partner at PricewaterhouseCoopers, said its suggestions for simplifying the tax system are to be welcomed. ‘The schedular system is 200 years old, and while it was fine for 1828, it is high time something was done,’ said Jenkins.

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