Press Release
For immediaterelease
Tuesday12th August 2003
BUSINESS FACES A HAMMERING
WITH EXTRA AMOUNTSOF RED TAPE
IoDsInitial Response to Governments Corporation Tax Consultation
The GovernmentsCorporation Tax consultation document, published today, draws concern from theInstitute of Directors (IoD) about the extension of the Transfer Pricing rulesto transactions between UK companies, which has arisen because of challengesunder EU law and which could hammer businesses with massive amounts of extrared tape.
Derek Brownlee, theIoDs Tax Executive, said:
We have been callingfor the Government to deal with the growing influence of European law on ourtax system for some time. Much of the recent case law has turned assumptionsabout the UK tax system on their head and created real uncertainty forbusiness.
Most of thediscrimination in tax law is there to protect the UK tax base. Take it awayand, for as long as just one EU member has a different tax system from the UK,there will be the opportunity to play one system off against the other. So theEuropean Court is able to use its case law to push EU members towards a form oftax harmonisation whether they want it or not.
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The IoD considersthat these proposals will put a huge new burden on businesses. Introducing arequirement for arms length pricing in transactions between two UK companieswill massively expand the scope of the current transfer pricing rules, creatinga huge amount of additional work for these companies. And for once, the newrules are unlikely to yield any significant additional amounts of tax for theGovernment.
The reason theseextra burdens will be imposed on many more UK companies is that the alternativeunder EU law would have been to repeal the transfer pricing rules for allintra-EU transactions, and that might cause the Corporation Tax yield to falldramatically as taxable profits were shifted out of the UK into a jurisdictionwith lower tax rates.
Derek Brownlee added:
Rather than imposingadditional burdens on UK companies, the Government could have adopted a radicalapproach and opted to reject the European Courts influence in the UK taxsystem by pressing for an amendment to the European Treaties, specificallybarring the European Court from interfering in direct tax matters.
Though the UK wouldthen be able to discriminate our tax system would still have to beinternationally competitive. The Government says its against tax harmonisationbut its letting it happen by the back door.
The IoD will besubmitting a full response to the Government in due course.
Note to Editors
The Institute of Directors is a non-party politicalindependent organisation with around 55,000 members. In addition to its widerange of business services, the IoD provides an effective voice to representthe interests of its members to government and key opinion-formers. It alsobrings the experience of business leaders to bear on the conduct of publicaffairs
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