Whatever happened to corporation tax reform

Imagine frank discussions about the revenue effects, and pattern of winners
and losers, from alternative proposals.

Imagine corporation tax receipts rising to historically and internationally
unparalleled levels, without the hysterical and counterproductive anti-avoidance
rhetoric of recent times, and on the back of new reliefs.

Imagine discussing how to make the UK more attractive to business, instead of
arguing about whether everyone is about to leave.

As recently as three years ago, corporation tax reform seemed alive and well.
Elements of it still survive, but the heart has been knocked out of reform,
because the Treasury, whose mantra is tax sovereignty, has abandoned control of
the agenda and is in the grip of a Maginot Line-like defensiveness, haunted by
phantoms of avoidance, and reacting to news from the Accounting Standards Board
and Europe.

How did it all go wrong? The dialogue went something like this:

Treasury: Why don’t we tax you on your broad business
profits and forget all that stuff about schedules, capital/revenue and so on? So
much simpler. But while we’re waiting for your answer, we’ll reverse the Camas
decision and bring back capital/ revenue to management expenses.

Business: But what will happen to the capital losses some of
us have?

Treasury: Well, we’re disappointed that we can’t all agree,
but we are listening. So we’ll stick to the old way of doing things. But we’re
shocked to discover the abuse that’s been going on with capital losses, so we’re
introducing anti-avoidance rules to stop it.

Business: So we have an even more complex system, and no
worthwhile losses? Isn’t that lose-lose?

Treasury: No, it’s win-win. You get to keep the system you
wanted, we get to keep the cash.

Business: It isn’t what we expected.

Treasury: That’s what open consultation is all about.

Business: I think I’ll leave now.

Treasury: You know you love it here. And we’re still

And so they are. Just about.

When HM Treasury reached what it perceived as a brick wall it abandoned
sensible reform and imposed a system that suited no-one. It undermined its
argument that it couldn’t introduce the reform because of a lack of consensus.
Yet there was never consensus for the path it has pursued since.

John Cullinane is president of the CIoT and a Deloitte tax partner

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