Government backtracks on corporation tax

12 May 2008 / by Rachael Stiles
The Government is to rethink its planned reform for corporation tax amid threats from major businesses that they will take their business elsewhere to avoid huge tax bills.

A number of high-profile companies, such as Punch Taverns, pharmaceutical firm Shire, and life insurance provider Pearl, have been hinting that they would consider a tax-efficient relocation in order to stave off rising tax burdens, unless they reach an agreement over the issue with ministers.

The Government is thought to be rethinking its proposed new rules after being spooked by such companies' threats over the reforms, which the Government said were intended merely to simplify taxes on profits earned abroad, not generate extra revenue.

Initially, companies cheered the reforms to simplify the system, but this soon turned to suspicion when small print in the new rules revealed that the Treasury was granting HM Revenue & Customs the power to investigate companies that were sending taxable profits abroad to low-tax countries, leaving little money susceptible to tax in the UK.

Firms that turn big profits abroad have accused the Government of driving entrepreneurs overseas; they are arguing that other countries have a more business-friendly attitude, with a willingness to cut taxes in order to maintain a thriving community of major corporations.

Hugh Osmond boss at Pearl, Punch Taverns and previously Pizza Express, told The Times that "it would be relatively simple to transfer other functions, including the head office, outside the UK to lower-tax locations, such as Dublin or Geneva."

According to a report from the TUC (Trades Union Council), the average corporation already pays less tax than is stipulated by the current rules. The average firm pays 22 per cent tax, not the 28 per cent standard rate which is levied by the Treasury, leaving a tax evasion gap of £25 billion in the UK and $160 billion worldwide.

The TUC is issuing a pamphlet titled The Missing Billions, which is the first in a new series designed to stimulate debate. TUC general secretary Brendan Barber said: "There is mounting concern at the growing gap between the super-rich and the rest of society, but so far there have been few practical proposals to do anything about it.

"This TUC pamphlet is therefore doubly helpful. First it carefully works out just how much the super-rich and big companies rip the rest of us off by not paying their fair share of taxes. Secondly it sets out a practical set of policies that close loopholes, end abuse and starts the process of making the super-rich make a proper contribution – all without raising a single tax rate.

"Our strong view is that the proceeds should be used to properly fund public services, where six million are facing cuts in their real pay, and relieve poverty – particularly child poverty."

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