The idea emerged at a meeting called yesterday by the Inland Revenue’s International Division with representatives from business and accountancy firms in a bid pacify anger provoked by the proposed changes.
Those that attended the meeting left with the feeling that Revenue officials were off caught by the intensity of the anger and attempted to make it clear that they were only implementing proposals that originated with ministers.
One accountant at the meeting said: ‘It’s obvious they have been caught unawares by the flak.’
Changes to double tax relief would effectively end the use of so called ‘Dutch mixers’ – off shore shell companies used by UK multinationals to channel dividends from overseas subsidiaries.
The principle behind their use is that they allow profits from high tax countries to be offset against income from low tax countries so that the minimum UK tax liability can be achieved.
The Budget proposal is to cap the ‘high tax’ rate at the level of UK corporation tax – 30%. This would immediately remove the advantage of using mixers to mitigate the effects of tax paid in some countries at much higher rates.
At the meeting a proposal emerged to postpone the introducion of the changes. It was among many ideas that officials said would be put before ministers.However, many who attended left still feeling pessimistic.
‘Most people felt that we are not going to get huge changes. It’s as if they were looking at mixers as if they were used for outright avoidance,’ said one tax expert.
During the meeting Revenue officials stood by their estimate that the changes would cost UK multi nationals only £100m. Big accountancy firms have been putting the figure much higher somewhere between £1bn and £2bn.
PricewaterhouseCoopers recently claimed the measure, when taken with changes to controlled foreign companies, would cost one client alone £1bn.
The Revenue told the meeting they had analysed every mixer in currently in use to get their £100m figure.
For more on this, including the spat between PricewaterhouseCoopers and the government over the costs of the measure, read our special feature, Tax wars: Storm over double tax relief ‘echoes IR35’.
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