With the continual criticism of multinationals and their apparent proficiency in outwitting the tax system, one could be forgiven for thinking that the corporation tax rules were completely antiquated. In fact, over the last decade the system has been reformed significantly, not only to clamp down on avoidance, but also to make the UK intentionally more competitive internationally.
The previous government’s corporate tax roadmap, published in November 2010, declared that it wanted to create ‘the most competitive corporate tax regime in the G20’. Even before this, change was underway, with wide ranging exemptions for dividends and capital gains on the sales of shares introduced, as well as R&D tax breaks to incentivise innovation. On top of this, having cut the tax rate to an unimaginably low 20 per cent, George Osborne surprised us all last July when he cut it yet again to 19 per cent, and then to 18 per cent from 2020.
Where can the Chancellor go from here? The recent Google PR debacle suggests he would do well to exercise caution when it comes to claiming credit for the success of his policies in the international avoidance arena. What we do expect to see in the Budget are various measures driven by the G20/OECD Base Erosion and Profit Shifting project that are focussed on this same issue and that the Chancellor is personally committed to. A reform of patent box, to make sure it is not overly generous, and controversial changes to restrict interest deductibility have both been subjects of recent consultations and we expect firm proposals. BEPS conformity may be an overarching theme as the UK could have reached the end in terms of what can be done unilaterally to make the international tax system fit for purpose.
For the UK’s largest corporates, a requirement to publish a tax strategy will be legislated for, to put beyond doubt that a bad attitude to tax compliance is no longer an option.
In other areas, it is difficult to see what is left to go at, although we have been promised a new business tax roadmap in April 2016, so that may be mentioned from the despatch box.
For more information please contact Rebecca Reading or your usual RSM contact.