EU tax move finds little favour with the UK

London: A UK Treasury minister has dismissed Brussels’ latest move to combat tax avoidance as “an answer still looking for a question”.

David Gauke, financial secretary to the Treasury, said the UK remained sceptical about a proposal for a pan-European tax system, which was relaunched by the European Commission last week.

He said that “we do not see it applying to the UK”, adding that direct taxation continued to be a matter for individual member-states. He expressed doubts about the value of the initiative, known as the ‘Common Consolidated Corporate Tax Base’, which would use a formula to divide company profits between member-states.

The plan has a long history but is being promoted by Brussels as a tool for tackling avoidance and responding to “the challenges of a digitised, globalised economy”.

Gauke said: “The CCCTB has been around a very long time. It is a proposal still looking for a justification.”

In the government’s first speech on taxation this parliament, Gauke also stressed the UK’s determination to retain control over direct taxes in the face of what he described as “worrying talk across the channel of minimum tax rates applied on profits”.

Referring to reports that France and Germany were pushing for deeper integration of tax systems in Europe, he said: “Any form of EU minimum tax rates would undermine our sovereignty and we therefore would block it.”

The Conservative party has said it wants to maintain “the most competitive business tax regime in the G20” this parliament, after the Conservative-led coalition reduced corporate tax rates from 28 per cent to 20 per cent in the last parliament.

But Gauke suggested there would be difficulties in moving the tax rate below 20 per cent, in a sign of the additional risks of incentivising sole traders to set up their own companies if the corporate tax rate fell below the basic income tax rate. He said: “To go below 20 per cent of corporate tax may require us to address some of the structural issues in our system.”

He said there was a role for international competition over tax but said that “unfair competition needs to be fixed”, adding that the public was increasingly intolerant of people “not paying their fair share”. He said the UK was committed to “effective and sustained measures”. It had already taken action on the first measures to come out of the G20 initiative to crack down on “base erosion and profit shifting”.

The diverted profits tax, a new anti-avoidance measure introduced in April, was “a powerful signal we take these matters seriously”, he said. He was asked about businesses’ concerns that more companies than expected were being dragged into the new tax, which has been unofficially dubbed the “Google tax”. He said it was “designed to focus on a relatively small number of cases”.