CBI Urges UK Diverted Profits Tax Rethink
The Confederation of British Industry (CBI) has warned the UK Government that significant changes are needed to its proposed diverted profits tax legislation, to ensure that the regime does not capture genuine commercial arrangements.
In his 2014 Autumn Statement, Chancellor George Osborne announced plans to levy a 25 percent diverted profits tax on profits “artificially” shifted out of the UK. Draft legislation was published last December, which provides for a regime that tackles arrangements that exploit permanent establishment rules or obtain tax advantages through transactions or entities that lack economic substance. A consultation on the legislation closed on February 4, 2015.
Katja Hall, CBI Deputy Director-General, said that, as it stands, the legislation will affect many groups who do not engage in abusive tax arrangements. They will face, “at best, an additional layer of compliance, and, at worst, an erroneous tax liability.”
Moreover, the broad scope of the rules has led to concerns that HM Revenue and Customs will not be able to cope with the quantity of notifications from companies, Hall explained. This could cause long periods of uncertainty for affected businesses.
The CBI recommends that the Government include a “gateway test” in the legislation. This would “allow companies to self-assess at the outset whether they fall within the scope of the tax,” Hall explained. Crucially, it would “ensure the legislation is targeted solely on abusive arrangements and minimize [use of] HMRC resources.”
Hall also drew attention to the fact that the UK’s diverted profits tax is coming ahead of the findings of the Organisation for Economic Cooperation and Development’s (OECD’s) base erosion and profit shifting (BEPS) project. “Not only is it likely to put UK firms at a competitive disadvantage and put off would-be investors, but it may encourage other countries to take similar unilateral action resulting in a patchwork of complex uncoordinated legislation,” she said.
