UK Treasury Committee Concerned About DPT
The UK Treasury Committee has said that the draft legislation on the diverted profits tax (DPT) is unwieldy and stressed that the Government’s unilateral policy response should not destabilize international tax reform efforts.
The Committee’s response to the plans are included in its new report on the Autumn Statement 2014, which included plans for a 25 percent DPT on profits “artificially” shifted out of the UK.
Draft legislation was published last December, providing for a regime to tackle arrangements that exploit permanent establishment rules or seek to obtain tax advantages through transactions or entities that lack economic substance.
During a Committee inquiry, questions were raised about the Government’s decision to introduce a DPT unilaterally, ahead of the completion of the Organisation for Economic Co-operation and Development’s work on base erosion and profit shifting.
In its submission, the Institute of Chartered Accountants of England and Wales (ICAEW) said the draft DPT legislation was “highly complicated,” while the Chartered Institute of Taxation (CIOT) suggested that it had been drafted in a “very unclear manner,” especially with regard to the DPT’s potential scope. The ICAEW also noted that the DPT could impact the more than 120 tax treaties the UK has with other jurisdictions.
Chancellor George Osborne told the Committee that the Government had spent “a considerable period of time thinking about and planning this.” He said he was confident that the Government “will be able to tax genuine economic activity that happens in the UK, [and] do it in a way that the UK remains one of the most attractive places in the world to bring your investment, to set up your tech business or other business and prosper.”
The Committee has concluded: “Tax avoidance needs to be tackled vigorously, in the long run by tax simplification and reducing loopholes created by complexity. But the imposition of a tax by the UK on diverted profits could be at odds with the OECD’s international work in this area. The lengthy and complex draft legislation may also increase uncertainty for businesses.”
