Government ducking double tax challenge, says Ernst & Young

The firm’s bullish statement followed the announcement yesterday that the government is going to delay controversial changes to double tax rules for nine months.

John Fairley, a senior partner in Ernst & Young’s International Tax Services group, said: “Of course it’s good that the government has said these changes will not come into effect until March 31. But our objections to the changes still stand.

“The UK has an uncompetitive system of taxing multinationals and mixing was simply a long standing, accepted way of dealing with that. Other tax systems use a formal pooling system to get the same result. If the chancellor had wanted to take the artificiality out of the situation, he could have suggested a reform along these lines. That would at least have put UK multinationals on a level playing field with others.

“And it would have recognised the reality of globalisation. Multinationals don’t invest in dribs and drabs here and there and then expect to be taxed on each investment separately. They are increasingly looking at the world as a whole.

“If we don’t build a tax system which recognises that reality, then we risk making the UK even less attractive for inward investors than it currently is, and much less competitive abroad. Dressing up this fundamental error as an anti-avoidance crusade does not help – it simply puts artificial barriers in the way of sensible debate.

“Gordon Brown began this whole affair by saying that he wanted to modernise the UK tax system for multinationals. What he has actually done is drag it kicking and screaming back into the nineteenth century.”

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