TaxAdministrationTreasury sets out defence for tax cases

Treasury sets out defence for tax cases

The government has finally acknowledged the threat posed by legal challenges under EC law to UK corporation tax receipts.

Link: Budget 2003

The admission follows the loss of high-profile tax cases, such as Hoechst/Pirelli and Lankhorst-Hohorst, as well as the ongoing Marks & Spencer hearings, which could cost the Treasury up to £1bn thanks largely to a £750m group litigation order launched this month. The Treasury will now produce a document in the summer detailing its strategy to safeguard corporation tax revenues.

European tax experts gave a cautious welcome to the news. Peter Cussons, international corporate tax partner at PricewaterhouseCoopers, said: ‘On the bright side, it is the first overall government acknowledgement that there is an issue. The bad news is the attitude is one of determination to protect the status quo.’

The government’s approach could range from one of staunch refusal to accept European decisions to one of flexibility, where it would be willing to discuss taxation situations with businesses and bodies such as the Confederation of British Industry.

Others said the Revenue’s willingness to consult should be welcomed.

GOVERNMENT FACES HUGE TAX LOSS

Receipts and estimates of losses from current court cases include:

  • Corporation tax income £30bn
  • Total tax receipts: £397bn
  • Group Litigation Order: £750m
  • Marks & Spencer case: £30m
  • Hoescht and Pirelli up to: £500m Economic growth 2003 2-2.5% 2004 3-3.5% 2005 3-3.5% (forecasts) Inflation 2003 2.75% 2004 2.5% 2005 2.5% (RPIX average forecast Q4) Public borrowing 2002/03 #24bn 2003/04 #27bn 2004/05 #24bn 2005/06 #23bn (forecasts) DUTY Beer up 1p per pint Cigarettes up 8p per packet Fuel up 1.28p per litre (from 1 October) EXPORTS 2003 1.25-1.5% 2004 8.25-8.75% 2005 7-7.5% (forecast volume increase year on year) IMPORTS 2003 4-4.25% 2004 7.25-7.75% 2005 6.25-6.75% (forecast volume increase year on year) Tax receipts as a percentage of GDP 2002/03 37.6% 2003/04 38.6% 2004/05 39.2% 2005/06 39.8% (2002/03 forecast, others projected) VAT Deregistration threshold up from #53,000 to #54,000 Stamp duty – Exemption introduced for commercial leases under #150,000 Inheritance tax – Threshold up by #5,000 to #255,000.

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