Wednesday, August 29, 2007

Corporation Tax Too Complex For HMRC

The long view- lower tax rates have not cut revenue

Yesterday's FT story on Corporation Tax got a deal of coverage. As you will recall, it said that one-third of Britain's 700 biggest companies pay no CT.

On the face of it, that's surprising because almost all of those companies will be making profits in the normal sense of the term.

Company taxation in the age of the multinational is fiendishly complex, and major governments are constantly battling to close down loopholes (eg stricter rules on transfer pricing and controlled foreign corporations).

But the principal reason profitable British companies pay no CT is that they can set off a multitude of tax allowances against earnings.

To start with, successive governments have established a raft of capital allowances, supposedly to boost investment in things they consider desirable. Closely related is Gordon Brown's R&D tax credit, which reduces the CT take by £0.6bn pa. And in that case, we know that at least half of it is pure bunce to the recipients- ie a windfall gain requiring no action on their part other than filling in the claim form (see here).

Then there is the issue of debt interest, which is an allowable expense. That means companies can reduce their CT liability by switching from equity to debt finance, as many have been doing. The Law of Unintended-But-Entirely-Predictable-Consequences highlights Brown's notorious abolition of ACT relief (the Great Pensions Grab) because that introduced the asymmetry in the first place (see this blog).

Thus have the Commissars ensured that complexity and unintended consequences are built into the very core of the system. No wonder that the true tax liability is often a "grey area" .

One curious aspect of all this is that the FT was reporting a National Audit Office report published six weeks ago. Quite why it resurfaced yesterday is unclear: presumably it got overlooked in the rush of reports issued at the end of "last term".

In any case, the report was essentially probing HMRC's capability in taxing big companies. And it did not paint a happy picture. In the face of rapidly mounting complexity and burgeoning multinationals who get the very best advice going:
  • "The Department does not have a coordinated long-term strategy for staff continuity and recruitment of tax specialists into its large business work other than through internal transfer." (para 4.4). In contrast, faced with similar challenges, the US IRS has a programme to recruit 900 external specialists over the next 12 months

  • "Large businesses considered that HMRC client relationship managers and tax specialists did not always possess sufficient knowledge of the industry." (para 4.7)

  • "...they considered that the Department often failed to appreciate the practical issues and uncertainties surrounding international factors such as controlled foreign companies’ legislation, double taxation reliefs, transfer pricing and cross border-financing arrangements" (4.8)

The overall impression is of an organisation increasingly out of its depth- "staff ‘remain in their comfort zones, carrying out familiar tasks in familiar ways’ (2.38). They are bamboozled by the new challenges facing them.

So how much tax do they fail to collect? Amazingly, they have no idea. Whereas for other taxes, such as VAT, they estimate a "gap" against which they're shooting (16% in the case of VAT), they reckon it's too hard to do that for CT.

Others have been less reticent. The Tax Justice Network reckons it could be as much as 28%, or around £15bn this year.

So what to do?

It's pointless pining for a simpler world where companies stay still while governments help themselves to the till. Globalisation blows all that away.

It's also pretty pointless hoping we can somehow attract and retain enough one-step-ahead tax whizzos to work for HMRC: if they're that good, they'll follow the money down to the City, where they'll also escape working for the Commissars.

As we've argued before, the best and only realistic way forward is massive simplification and lower CT rates (see here for the Taxpayers' Alliance position).

PS The chart above is taken from WHY HAS THE UK CORPORATION TAX RAISED SO MUCH REVENUE? by Devereux, Griffith, and Klemm (IFS 2004). It shows that reductions in the statutory CT rate have not cut CT revenue as a percentage of GDP. Part of the explanation is that allowances have also been reduced (ie the tax base has been expanded), but another driver is that overall profitability has also improved, supported of course by the cut in CT rates.


  1. Bị khó ngủ là vấn đề đang xảy ra ngày càng nhiều trong xã hội ngày nay, bị khó ngủ phải làm sao ? Có nhiều cách trị khó ngủ như dùng thuốc , ăn món ăn trị khó ngủ ,.. Giảm cân không phải một sớm một chiều mà phải theo lộ trình dài hạn và khoa học , thực đơn giảm cân cấp tốc trong 1 tuần cũng là một trong số các cách giúp giảm cân hiệu quả. Trên thị trường hiện nay có nhiềuthuốc giải độc gan tốt , giúp giải độc gan hiệu quả và an toàn. Đau mắt đỏ là bệnh rất dể lây lan , vậy cách chữa bệnh đau mắt đỏ nhanh nhất bằng nhiều phương pháp khác nhau . Bỏng bô xe máy là hiệu tượng gặp nhiều nhất hiện , vậy bị bỏng bô xe máy kiêng ăn gì ? Những thực phẩm nên kiêng như hải sản , đồ tanh , trứng và các món gà và nếp ,...

  2. Bạn cần dịch vụ vận chuyển. Hãy đến với chúng tôi giao nhận 247. Với đa dạng các dịch vụ về vận chuyển có thể kể đến như: chuyển hàng từ Đài Loan về Việt Nam, gửi hàng từ úc về Việt Nam, ship hàng Đức về Việt Nam, chuyển hàng từ Hàn Quốc về Việt Nam giá rẻ...
    Ngoài ra chúng tôi còn có dịch vụ chuyển hàng từ pháp về việt nam. Nếu bạn ở Việt Nam và cần chuyển ra nước ngoài thì đã có dịch vụ chuyển hàng từ Việt Nam sang Đài Loannhận chuyển hàng từ Việt Nam sang Hàn Quốc để bạn sử dụng. Hãy liên hệ với chúng tôi khi cần nhé.

  3. Chuyên mua bán các loại thực phẩm chức năng dành cho sức khỏe người dùng như đông trùng hạ thảo tenken, sâm alipas, Sâm angela, sữa rửa mặt neutrogena, thuốc bổ cho bà bầu elevit
    hay những sản phẩm bổ xung calcium+600mg+++d3.
    Ngoài ra chúng tôi còn giải đáp những thắc mắc về thuốc của các bạn thông qua những bài viết như: vigrx plus co tot khong,