Debate urged over GLO fears

Renewed calls for a public consultation on the future of corporation tax
policy have been made by the Chartered Institute of Taxation after a swathe of
challenges to UK tax law by up to a thousand multinationals.

With Cadbury Schweppes landing a new blow to UK tax law last week over
controlled foreign companies rules, John Cullinane, the incoming president of
the CIoT, told Accountancy Age that the threat was so large a public
consultation was necessary: ‘We are in favour of being open about it,’ he said.

Informal talks have been taking place for around a year now. The Treasury had
initially said nothing about the cases, which threaten to lead to tens of
billions of pounds worth of tax reclaims, as well as seriously undermining
future corporation tax revenues.

More recently, the prospect of sweeping changes to corporation tax law have
been mooted. ‘If you have fundamental issues as to compatibility [with EU law]
and if you are thinking about how to put it right I cannot see how anything can
be ruled off limits,’ Cullinane said.

The most extreme scenarios have pictured the Treasury dropping interest
relief against profits, a move that would alienate multi-nationals, who use the
UK’s fairly unique debt rules to fund their activities.

‘If you were a Martian coming to set up a company, interest relief and the
lack of withholding tax are key attractions of the UK. This is in unthinkable
territory,’ he said.

Talks between the Treasury and other figures are understood to have been less
common recently, it being thought that the Treasury could not carry on talking
informally forever.

The tax authorities were thought to have been buoyed by December’s M&S
judgment, which seemed to take a more understanding view towards the problems
faced by governments. The Cadbury Schweppes judgment has been hailed as a swing
back in the direction of companies.

The government faces more jitters next week, when the advocate general
delivers an opinion in the thin capitalisation group litigation order.

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