Once again, Fieldfisher’s tax partners have contributed to the popular PLC round-up of expert practitioners’ views on the Budget. This year’s comments are below:
Another Budget, another raft of measures with the aim of reducing tax avoidance. And within this year’s raft is the introduction of a tax that has the potential to damage significantly the UK’s economy and standing in the global community: diverted profits tax (DPT). DPT will come into effect only a week after publication of the Finance Bill, with any time for proper Parliamentary scrutiny thereby having been precluded.
But for the desire to grandstand before the election, the introduction of DPT may have been postponed until after the end of 2015, when the OECD will have released its BEPS report that will address the shifting of profits of multinational groups to low tax jurisdictions. DPT is anticipated to raise only £360m a year by 2017/18. Postponing the introduction of DPT until after the OECD had concluded its work would have had all but no impact on the quantum of the fisc’s tax take; it would have enabled the UK to address the harm of the perceived tax avoidance in a way that is consistent with that to be adopted by other countries.
The three fundamental concerns are:
- Gambling on all of the UK’s double tax treaty partners accepting that DPT falls outside the ambit of the treaties is akin to forcing the UK to risk its position in the global economy on rounds of Russian roulette where all but one of the chambers have been loaded.
- There is, at the least, significant doubt as to whether DPT will be lawful as a matter of EU law, and, accordingly, there is a significant risk that the legislation will be the subject of, perhaps concerted, challenge on that basis.
- DPT’s complex procedural framework will impose a significant, and disproportionate, compliance burden, not only on a vast number of companies, many of whom, as the Government accepts, will not be liable to pay the tax, but also on HMRC.
Whilst it is to be welcomed that the legislation has been revised to narrow the notification requirement, the fundamental concerns remain.
Graeme Nuttall, OBE
Budgets 2012, 2013 and 2014 contained unprecedented support for the employee ownership (EO) business model. After such an amazing era it was expected that the pre-Election Budget 2015 would be silent on EO policy. The heavy-lifting was done in Schedule 37, Finance Act 2014. The Government has ensured that tax does not distort the choice of EO business model by creating support for the indirect form of EO, as well as strengthening the direct form. Every month companies are now switching to EO. This is not because of the new CGT exemption for the sale of a controlling interest to an employee-ownership trust (EOT) or because employees in a company controlled by an EOT may receive up to £3,600 a tax year income tax free, as John Lewis Partners enjoyed recently. These tax exemptions provide an invaluable prompt to consider EO especially as a business succession solution. The main reason for choosing EO is that EO is a successful and enduring business model: one that is good for business performance and good for staff. This is why businesses such as Hayes Davidson, St Brides Partners and Stride Treglown have all switched to EO in recent weeks and why EO is establishing itself in the mainstream of the UK economy.