|
|
|
Three principles of tax simplification
Anti-avoidance legislation
Corporation tax rules for related companies
Our view
Three principles of tax simplification
The Government has today announced the start of a
programme of tax simplification. It sets out three principles of tax
simplification:
-
simplification will be a priority when designing and reviewing tax
policy, alongside sound public finances and fairness;
- the
Government will work with business to identify further opportunities to
simplify the tax system; and
- the
Government will share its findings on the viability of tax
simplifications with business.
In particular
the document announces that Government will launch three reviews this
Autumn. HM Treasury and HMRC will work with business to evaluate how a range
of tax policies could be simplified. These initial reviews will cover:
- VAT rules
and administration in the UK and the EU;
- how
anti-avoidance legislation can best meet the aims of simplicity and
revenue protection; and
- how to
simplify the corporation tax rules for related companies.
These reviews
will be wide-ranging but areas where Ministers have already made political
or manifesto commitments or policy decisions to protect the public finances
from criminal attack and serious non-compliance will be out of their scope.
Each review will first evaluate whether it reflects business concerns and
priorities and are consistent with the Government’s principles of tax
simplification outlined above. Businesses and tax professionals will be
invited to comment and to suggest other areas for discussion. Once
priorities have been identified a work programme, setting out the remit and
estimated timetable for the reviews, will be agreed with business. The
Government will provide an update on the progress of each review at Budget
2008.
Unusually participation in the reviews, including commenting on the
priorities outlined below, is invited either by completing the online
questionnaires available or responding by email.
HM Treasury and HMRC will also be discussing simplification priorities with
business through existing forums and specially arranged events.
Suggested priorities for each review, how they apply to business, and issues
that might be discussed are outlined below. Views are invited by the end of
November.
Back to top
Anti-avoidance legislation
The document says HM Treasury and HMRC believe the priority areas in
relation to anti-avoidance legislation are:
- ensuring
new anti-avoidance legislation is clear, effective and well targeted;
and
-
simplifying areas of existing anti-avoidance legislation.
The document
states modern anti-avoidance approaches can be consistent with moves to
simplify the tax system, and cites some examples in this year’s Pre-Budget
Report and recent Finance Acts. HMRC and HM Treasury want to agree with
business which legislative methods minimise business burdens. The review
could also look at whether all anti-avoidance provisions should be in
primary legislation or use a more flexible combination of primary and
secondary legislation, and whether anti-avoidance legislation should be in
separate parts of the tax code or integrated.
HMRC and HM Treasury would welcome views from business on any areas of
existing anti-avoidance legislation it thinks could be updated and
simplified, whilst ensuring revenue protection. Business is asked to
highlight those areas of anti-avoidance legislation that impose the most
significant burden. Government will then work with business to see how these
areas could be simplified or even removed altogether, without harming
revenue protection.
Back to top
Corporation tax rules for related companies
There are over one million active companies in the UK, many of which have
related companies, either as part of a group, or because of common
ownership. These relationships often complicate tax affairs, and simplifying
the corporation tax treatment of related companies could help reduce
administrative and compliance burdens. The document states HM Treasury and
HMRC believe the areas where simplification will be of most significance to
UK companies are:
- group
aspects of corporation tax on chargeable gains;
-
associated company rules for small companies corporation tax rate;
- CTSA
filing and payment for groups; and
- the
burden of the transfer pricing rules
The Government
believes there may be scope for: (i) simplifying some of the provisions
aimed at ensuring tax is only levied on gains realised when an asset is
disposed of outside a group; (ii) aligning the tax outcome more closely to
the economic effect for the group.
Each of these are discussed below.
As regards group aspects of chargeable gains, HMRC and HM Treasury seek
views on:
- what
should comprise a group for the purposes of corporation tax on
chargeable gains;
- the
treatment of assets transferred between group companies;
- the
offsetting of gains and losses within a group;
- the
treatment of companies on joining and leaving a group; and
- whether
the taxation of the chargeable gains of a group of companies is fair and
accords as far as possible with economic outcome.
As regards the
associated companies rules for the small companies rate of corporation tax,
they have existed for many years and, by and large, still deter income
fragmentation. However the document notes that when the rules were
introduced, partnerships were limited in size and the administrative burden
of establishing the number of associated companies controlled by business
partners was not great. Limits on the size of partnerships were lifted some
years ago, and partnerships can now be very large. This increase in
partnership size can in some cases cause problems in establishing the number
of associated companies. The Government believes there may be scope for
simplification of the associated company rules as they apply to the small
companies rate.
As regards CTSA filing and payments for groups, arrangements already exist
in certain, currently limited, circumstances for payments and tax
information to be provided to HMRC on a group basis, for example group
Quarterly Instalment Payments and claims to group relief. There may be scope
to review the efficacy of these existing arrangements with business and
identify the potential for improving and extending such arrangements to
reduce administrative costs for business.
Transfer pricing is a key area of concern for businesses. Most of all,
business wants greater certainty and speedier resolution of enquiries
leading to reduced compliance costs. This is being addressed through the
Review of Links with Large Business. The review will discuss whether the
burdens caused by transfer pricing in cross-border or domestic situations
can be further reduced.
Back to top
Our view
This announcement is perhaps one of the Pre-Budget Report’s more
interesting documents. It will have little or no immediate effect but
which could turn out to be significant. At least one of the new
Chancellor’s speeches had indicated an interest in tax law
simplification, but of course this is not unknown for new Ministers. The
practicalities of balancing simplification with the needs for fairness
and revenue-raising often quickly crowd out thoughts of simplification
before anything gets done.
At this stage the proposals are necessarily in their early stages. It
has yet to be seen whether HMRC and the Treasury can engage meaningfully
in a debate with business and advisors to simplify the areas of law
initially put forward, and perhaps identify other areas for
simplification. |
|
|
