TaxCorporate TaxThe mother of all tax rows

The mother of all tax rows

Thinking about the year ahead, there is one tax row that could dominate the agenda this year; and that’s the one over the likely restriction of interest relief

The fact that UK companies can deduct interest payments against their
corporation tax bill is coming under attack from several quarters.

Some argue it hands an unfair advantage to foreign acquisitors to load UK
subsidiaries with debt and offset profits.

A cursory glance at Nestle’s UK subsidiary, which has in recent years turned
over around £2bn and made hardly a penny of taxable profit, certainly suggests
the UK may be missing out on something.

But more importantly, the challenge of the European Court of Justice has
encouraged policymakers to discuss dropping the advantage. If multi-nationals
are to get huge rebates from the ECJ, they are going to be denied interest
relief to make up the shortfall, the argument goes.

Though critics say that the move would alienate multi-nationals, it might not
be such a bad idea to question whether the dogmatic defences of ‘inward
investment’ is healthy.

What about tax advantages for UK businesses and UK entrepreneurs? Why don’t
they ever get a look-in in those debates?

Any move to limit the relief makes the business models of a host of foreign
purchasers, like Ferrovial and BAA, as well as the huge private equity industry,
look much tougher.

With the huge indebtedness of corporates beginning to pinch, the moves would
exacerbate corporate insolvency issues.

Offshore bank accounts, tax credits and general avoidance will dominate much
of HM Revenue & Customs’ agenda this year. But interest relief changes would
provoke a whole different order of tax row.

Alex Hawkes is the news editor of Accountancy Age

Related Articles

Watch out when winding up

Corporate Tax Watch out when winding up

1m Emma Rawson, ATT Technical Officer
How might Brexit affect UK tax policy?

Brexit & Economy How might Brexit affect UK tax policy?

1m Santhie Goundar
Corporation tax losses – your newly flexible friends

Corporate Tax Corporation tax losses – your newly flexible friends

3m Emma Rawson, ATT Technical Officer
HMRC large business tax enquiry duration rises to 3 years

Corporate Tax HMRC large business tax enquiry duration rises to 3 years

4m Emma Smith, Managing Editor
SMEs paying higher rate of corporation tax than big businesses

Corporate Tax SMEs paying higher rate of corporation tax than big businesses

4m Alia Shoaib, Reporter
Big names, little tax: Airbnb, Facebook, Kellogg’s, eBay

Corporate Tax Big names, little tax: Airbnb, Facebook, Kellogg’s, eBay

7m Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

7m Emma Rawson, ATT Technical Officer
EU divided over radical tax reforms targeting tech giants

Corporate Tax EU divided over radical tax reforms targeting tech giants

8m Alia Shoaib, Reporter