Devolving Scottish tax likely to be “expensive and complicated”

A STARK WARNING has been issued to the Scottish government about taking control of its own tax affairs by the ICAEW.

In its written submission to the House of Lords Economic Affairs Committee on the economic implications of Scotland’s independence, the institute said that a lack of data about current Scottish tax take would be a “shaky foundation” on which to base revenue projections – on either side of the border.

“Similarly, can current expenditure on state pensions and benefits be accurately split between Scotland and the rest of the UK? In the absence of detailed information, estimates can be made, but they would only be as good as the underlying data and assumptions,” said the ICAEW’s statement.

Cross-border trading and double taxation would also be concerns if Scotland was able to set its own tax rates.

“Our principal concern is that such differential tax rates may create serious, expensive, complicated and unintended consequences for both Scotland and the rest of the UK,” the statement added.

“It will be necessary to decide on taxing rights, for example for income tax, by reference to residence and domicile of individuals and for companies by where they are incorporated or managed and controlled.

“In order to minimise possible problems of double taxation in the UK, it would be necessary for Scotland and the rest of the UK to enter into a comprehensive double taxation agreements in line with international practice. The key issue would be clarity: it would be essential for both countries’ taxing rights to be clearly understood by government, the tax authorities, businesses and individuals.”

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