Autumn statement: Tax competition in the UK and ‘jumping the gun’ on BEPS

This week’s autumn statement was more like a budget than this year’s budget, according to EY, with 59 policy measures listed in the full report compared to 56 in March.

We can now expect dozens of draft Finance Bill 2015 measures to be published on 10 December for consultation.

These will include the new “diverted profits tax”, which has had some commentators observing that the UK government may be jumping the gun as international efforts to reform the outdated corporate income tax system continue.

The IFS has suggested that while the UK is proposing a unilateral measure, the idea does fit with the OECD’s base erosion and profit shifting (BEPS) agenda. Australia is reported to be considering following in the UK’s footsteps.


We can expect further significant changes to UK taxation to be introduced in January, with draft legislation implementing further devolution of tax powers to Scotland.

The Smith Commission recommended last week that the Scottish parliament should have almost complete control over income tax, but said control of corporation tax should remain with the UK parliament.

For Northern Ireland, the UK government’s long-awaited conclusion on corporation tax was that:

it recognised “the strongly held arguments for devolving corporation tax rate-setting powers to Northern Ireland, including its land border with the very low corporation tax environment in the Republic of Ireland”; and

devolution of such powers “could be implemented provided that the Northern Ireland executive is able to manage the financial implications”.

The government will introduce legislation in the current parliament, subject to satisfactory progress in cross-party talks on agreeing budgets and putting the Northern Ireland executive’s finances on “a sustainable footing for the future”.

The IFS has noted that devolution “could introduce profit shifting and tax competition within the UK”.

The ICAEW Tax Faculty said: “It is difficult to see that a 12.5% rate could be introduced [in Northern Ireland] without substantive changes to the rest of the UK’s corporation tax system, for example introducing transfer pricing rules, profit apportionment, protection against tax motivated incorporation and perhaps even the need to apply the new diverted profits tax.”

The Chartered Institute of Taxation said the government’s announcement “fires the starting gun for tax competition for businesses within the UK, with the move sure to lead to demands for the same powers to be devolved to Scotland and Wales”.

The autumn statement also confirmed that the government is aiming for cross-party agreement on the Welsh devolution settlement by 1 March 2015, building on the current Wales Bill which includes a power (subject to endorsement in a referendum) to set Welsh income tax rates for Welsh taxpayers.

The autumn statement, and five tax-related bills already before the UK parliament

Nowadays the last weekend in November feels like the run-up to the annual budget. All eyes are on the autumn statement to be delivered on 3 December and “legislation day”, set for 10 December. This time, when the chancellor speaks, there will be five tax-related bills already before parliament – some of which will introduce complex and far-reaching changes – and that does not include draft legislation to be published in January for further devolution of income tax to Scotland.

Childcare Payments Bill

This bill’s second reading in the House of Lords will take place on 9 December. It introduces the “tax-free childcare” scheme to provide help with childcare costs. Tax experts have warned that the interaction with other forms of childcare support will be complex and difficult for claimants to understand.

National Insurance Contributions Bill

The House of Lords committee stage is set for 15 December. This bill is intended to simplify NICs paid by the self-employed; allow for accelerated payment notices and follower notices in relation to NIC avoidance; and introduce a targeted anti-avoidance rule.

Small Business, Enterprise and Employment Bill

This bill is set for its second reading in the House of Lords on 2 December. The stated aim of amendments to UK company law is to “increase transparency around who owns and controls UK companies and to deter and sanction those who hide their interest in UK companies to facilitate illegal activities or who otherwise fall short of expected standards of behaviour”. The measures include

“requiring every company to keep a register of people with significant control over the company, the abolition of bearer shares and corporate directors and the imposition of directors’ duties to shadow directors”.

Taxation of Pensions Bill

The House of Commons reports stage and third reading are scheduled for 3 December. A Treasury briefing note said this bill would implement “the most radical change to the way people take their private pensions for nearly a century”.

Wales Bill

The House of Lords has returned the bill to the Commons with amendments, some of which

“would amend the power of the National Assembly for Wales to set a single Welsh rate to be used for the purposes of calculating the Welsh basic, higher and additional rates of income tax to be paid by Welsh taxpayers. The amendments would enable the Assembly to set separate Welsh rates for the purpose of calculating each of those rates of income tax.”

I can’t mention Wales without mentioning Scotland, of course. And the Smith Commission’s recommendations, including measures to allow the Scottish Parliament almost complete control over income tax, are going to be turned into draft legislation by 25 January. It all seems a bit hasty.

Universal credit: Basic rules and the complexities facing self-employed clients

Tax professionals with self-employed clients claiming tax credits will have had to master, perhaps reluctantly, the complexities of child tax credit and working tax credit.

Universal credit is set to replace tax credits and some other welfare benefits; but any thoughts that this is likely to be simpler than tax credits, or that it can be ignored altogether, must be put to one side.

Read more at Taxation (subscription required).

My other Taxation articles are listed here.

Hodge warns against countries adopting a ‘two-faced approach’ to tax policy

The chairman of the Commons Public Accounts Committee has warned against countries “adopting a two-faced approach” to tax policy by signing up to international standards while engaging in tax competition.

Margaret Hodge, addressing the committee’s London conference on tax and globalisation, welcomed the UK government’s plans to stop companies moving profits offshore. Last month George Osborne indicated that his autumn statement on 3 December would target technology companies that “go to extraordinary lengths to pay little or no tax here”.

The allocation of taxing rights between countries, in relation to the profits of companies doing business in countries where they have little or no taxable presence under existing law, is a key issue being addressed by the OECD’s base erosion and profit shifting (BEPS) project. G20 leaders will discuss the OECD’s findings at their Brisbane summit next month.

Read more at AccountingWEB.

OECD hails ‘game changer’ deal on evasion

Yesterday’s “massive” signing in Berlin of an agreement implementing the new OECD standard on automatic exchange of information is a “game changer” in the fight against tax evasion, said OECD secretary-general Angel Gurría.

Read more at AccountingWEB.

Cameron calls for ‘real debate’ on Welsh taxes

David Cameron has called for a “real debate” about tax-raising powers for Wales after he was challenged during Prime Minister’s Questions to ensure that Wales receives the same level of funding as Scotland. The Welsh government is consulting on the establishment of a Welsh revenue authority and arrangements for devolved taxes.

Read more at AccountingWEB.

Scottish tax rates will add complexity, MPs told

Further devolution of taxes to Scotland will create more complexity and anti-avoidance legislation will be needed to deal with cross-border issues, tax experts have told MPs. The House of Commons Treasury Committee launched an inquiry last week into proposals for further fiscal and economic devolution in Scotland.

Read more at AccountingWEB.


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