TaxCorporate TaxBig four hold all the cards

Big four hold all the cards

'The thin end of wedge', 'scratching the surface', 'ducking the issue', 'the beginning of an administrative nightmare' and 'a piecemeal approach' are just some of the terms I have heard used to describe the recent consultation on corporation tax.

I would go one further. I think it offers an excellent example of sheer government lunacy.

The biggest problem faced by companies – whether large or small – is uncertainty. This is closely followed by the huge administrative burden of red tape.

All the consultation document seems to suggest is that the Inland Revenue plans to greatly increase both. It has addressed four issues of the UK tax system that are at odds with the EC Treaty. Which leaves, using a conservative estimate, another 20 to resolve.

And where does that leave the average multinational company? It leaves them looking to employ solicitors and tax advisers.

They, at least, are willing to accept our tax system needs addressing.

And they, not the government, are driving change. The Big Four has more influence over what happens to the UK’s tax system than the government.

The most high-profile change offered in the consultation document was over transfer pricing and thin capitalisation rules. Both were in reaction to the European Court of Justice ruling on Lankhorst-Hohorst. And that ruling has resulted in hundreds of claims from companies in a similar position, driven by their corporate tax advisers.

And remember Marks & Spencer? It is currently waiting to take its cross-border loss relief case to the same court. The government doesn’t have a leg to stand on, yet it failed to mention the problem in this document.

Only, it seems, if the ECJ has ruled on a specific tax issue will the Revenue recognise a problem exists. Well problems do exist – the government is facing a number of high-profile cases of which M&S is just one.

But, and here is the crux, it may not come before the ECJ for years. And that is where politics come in. Why should Brown risk his tax receipts because legislation might be illegal? Next month, he overtakes Nigel Lawson as the longest-serving post-war chancellor. If he waits it may become someone else’s problem.

  • David Rae is technology editor of Accountancy Age

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