On 16 June, we at last got somewhere on double taxation relief – but not very far. The government announced the proposals in the Finance Bill would be modified. Non-UK mixer companies will still become useless. But as an alternative, it will be possible to get credit for some foreign tax above 30% against UK tax on some other dividend income. And a bit of mixing in the UK, called onshore pooling, will be allowed. The press release made it hard to tell just how much things had improved. There are 28 paragraphs of details, and the last 27 of them give a very great deal of detail. They had to, because the corresponding amendments to the Finance Bill were being tabled the same day for debate in Standing Committee. But those 27 paragraphs cover secondary matters. Paragraph 1 covers the big issue, the new substitutes for mixing. It gives very little detail. The amendments to implement paragraph 1 will be made at report stage, in the last couple of days of Commons debate. It does not follow that the detail behind paragraph 1 had not been decided by 16 June. It almost certainly had been. ministers do not make grand promises about tax policy without first checking that they can deliver, and the only way to check would be to work out the detail in advance. It is interesting to note exactly what is missing. Paragraph 1 states there will be credit for underlying tax ‘within certain limits’, and that there will be relief through onshore pooling for ‘some’ foreign tax. What are the limits, and how much is some? We could be heading for something almost as generous as we had before the Budget, or we might get something hardly any better than the Budget proposals. A clue came from the Treasury Press Office. When journalists rang on 16 June, they were told there would be rules against the abuse of onshore pooling. That is perfectly appropriate, so long as there is a sensible definition of abuse. We must beware of getting something like the motive test for controlled foreign companies, which can be very hard to pass. Whatever rules against abuse we get, the fact they are on their way should have been stated clearly in paragraph 1, together with full details. All we were given was a statement in the introductory paragraphs that onshore pooling will be allowed ‘where this involves genuine business activity’. These words are hopelessly ambiguous. Do they mean the profits pooled must have come from businesses, in which case most groups will have no problem. Or do they mean the pooling itself is a genuine business activity, in which case no-one will qualify because pooling is part of a tax computation. One wonders why the press release gave so little detail about its most important topic. It may be that the government wanted time to consult with interested parties on the detail. That would be welcome, but I would be surprised: consultation on these measures has not been the government’s strong point. And if consultation were planned, the press release would probably have said so. I fear that it is much more likely the government simply did not want another public row on the subject. If the details had been published on 16 June, we would all have spent weeks discussing the implications in public and calling for changes. If the package is kept under wraps until report stage, everything will be settled before the debate can get going. The Revenue is very good at consultation, and we see the results in improved policy-making. But there is a price. If ministers decide to go against what the vast majority of commentators ask for, they will find themselves under pressure to justify their position properly. Early in June, the Treasury said that they were not in a negotiating position over double tax relief – government policy had been decided. Sorry, but if you do consultation properly you will always be in a negotiating position to some extent. That is good for the UK, but it takes courage to accept that ministers are no longer the unquestioned arbiter of policy. I hope that ministers will be prepared to publish full details of their decisions as soon as they are made, and will relish the consequent lively debate.
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