IoD Warns Against ‘Rushed’ Diverted Profits Tax
The UK’s Diverted Profits Tax “is being rushed into law for short-term political reasons and against the Government’s own rules on setting business taxes,” the Institute of Directors (IoD) has said.
The IoD pointed out that, in 2010, the Coalition introduced a Corporate Tax Road Map, which committed the Government to “open and transparent” consultation with businesses before introducing tax changes, and set out principles for reform including “avoiding complexity” and “maintaining stability.”
According to Stephen Herring, Head of Taxation at the Institute of Directors, the proposed Diverted Profits Tax, to be introduced at a “penalty rate” of 25 per cent, “represents a dramatic breach with the Government’s own road map on tax, and we can only conclude that short-term political pressure has given the Government the confidence to ride roughshod over its own rules.”
“We fear that the perceived political imperative of being seen to do something about the treatment of global corporations will mean that this tax is enacted too hastily and without adequate consultation.”
He continued: “There is no doubt that there has been increasing public concern about tax avoidance expressed in the media and, most vocally – if not always accurately and fairly – by the House of Commons Public Accounts Committee.”
“However, whilst we fully agree that global multinational companies ought not to benefit from a more favorable overall tax treatment than that obtained by purely domestic companies, we cannot support the enactment of the Diverted Profits Tax in its current form without adequate consultation with business.”
Although there is support for the UK’s plans among the IOD’s membership, with 74 percent agreeing that a Diverted Profits Tax of some kind is necessary, just 30 percent are in favor of fast-tracking the legislation before the end of this Parliament.
The IoD is concerned that if the Diverted Profits Tax legislation is introduced before the dissolution of Parliament, as the Coalition plans, then key points of detail will avoid the scrutiny and consultation necessary to ensure effective tax legislation. It noted that Parliament’s influential Treasury Select Committee recently described the Diverted Profits Tax legislation as “long and highly complex.”
The IoD, therefore, has recommended that the Government and the Opposition agree to either postpone the enactment of the Diverted Profits Tax until after the General Election or, preferably, postpone its enactment until the outcomes of the Organisation for Economic Co-operation and Development’s base erosion and profit shifting review are clear.
Herring concluded: “We are firmly of the view that tax policies affecting UK businesses ought to be driven purely by their economic impact on the UK and its citizens, rather than the short term political positioning that has led to the invention of this proposed tax.”
