Tax wars: Storm over double tax relief ‘echoes IR35’

The reform of double tax rules has become the focus for outrage since the Budget last week as accountants moved to claim the changes would cost multinationals billions in extra tax and that the Revenue has ‘ignored’ views from the profession when going through consultation.

Yesterday however a proposals emerged to defer the introduction of the changes with Revenue officials saying they would put the idea before ministers.

The meeting, which follows the spat between the government and PricewaterhouseCoopers (detailed below) over the issue, was intended to allow the Revenue to explain the changes to around 70 people from the profession and industry.

However, one tax expert said: ‘This has echoes of IR35 and the fiasco over that. They’ve gone down a path and now there’s a huge backlash and they don’t know how to deal with it. The Revenue seems to be adopting a siege mentality.’

The changes will effectively end the use of so called ‘Dutch mixers’ – overseas shell companies which allow multi-nationals to demonstrate they have already paid tax abroad close to UK rates and as a result they obtain relief.

Most anger however is settling on the consultation for double tax relief launched in April 1998. Accountants believe commitments were made to publish responses from the profession before any steps were taken.

The consultation was announced as part of the Budget in 1998 and many in the profession have been saying that all the advice, and pleas, to the Revenue were to keep mixers in place.

Some observers have begun to speculate that the consultation responses are so opposed to changing arrangements for double tax relief and multi-national companies that it would not be in the interests of policy makers to have them made public.

Ernst & Young tax partner Stephen Barrett called upon the government to release the information.

‘These responses have not been made available. We want to see those responses made available as promised,’ he said.

Another tax expert said: ‘We have had complete silence from the Revenue since the start of consultation. People are asking themselves why they should have bothered responding if they were going to be ignored.’

A spokesman for the Inland Revenue said no such promise would have been made.She said: ‘We are still considering at the moment whether to publish the responses.’

Controversy over DTR has also brought the chancellor Gordon Brown into direct conflict with Peter Wyman, a partner at PricewaterhouseCoopers, who claims the Revenue has massively underestimated the true cost to business of the changes.

In a statement put out in his name Wyman said that taken along with changes to Controlled Foreign Companies, reform to doulble tax relief could cost UK multi-nationals ‘several billions’. Some firms are estimating £1bn to £2bn alone for double tax relief, well ahead of the £100m yield the Treasury is estimating.

Friday last week saw a meeting between officials from the Treasury with representatives of PwC. However, the Big Five firm indicates that it was unmoved by Treasury arguments and Wyman stands by his original opinion.

On Sunday, the chancellor appeared on Breakfast with Frost to undermine Wyman claiming his views should be taken with a ‘pinch of salt’ because the tax expert had once been an adviser to the Tory Neil Hamilton when he was a minister at the DTI.

Wyman, about to become vice-president of the English ICA, is understood to be remaining aloof and unlikely to get involved in the ‘name calling’ with Brown even though a chancellor setting out to deliberatly discredit opinion from such a senior figure in the profession is unprecedented.

Maurice Fitzpatrick, head of economics at Chantrey Vellacott, said: ‘It’s ludicrous for Gordon Brown to try and undermine Peter Wyman’s credibility on this complex technical issue simply by referring to people they might have dealt with in the past.’it’s comparing apples with oranges and on that basis we could all be damned.’

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