HMRC consult on tax reform

The government has held a key stakeholder meeting to discuss plans going forward that would see it work with other governments and international agencies to reform rules governing international taxation say Harris & Co accountants Northampton.

The stakeholders – including accountants, lawyers, NGOs and multinationals such as Shell, Vodafone, AIG, Balfour Beatty, Burberry and BP – held discussions on where the current rules work well because they result in an allocation of profit that is consistent with economic substance, and where they don’t work well and produced inconsistent results.

HMRC told Accountancy that the key questions that attendees discussed included: countering base erosion in respect of the role of economic substance; jurisdiction to tax – for purposes of concepts such as permanent establishment, considering whether a base can be made in principle for different treatment of digital and non-digital products or services, and what the criteria for supporting such a principle are; and transfer pricing – considering whether there are circumstances in which transfer pricing rules do not currently result in profit being aligned with the location of substance or ‘core value-driving activities’ of a business.

The discussions come as the topics are now at the top of the agenda of the G8, following a hard-hitting report from the Organisation for Economic Development and Cooperation (OECD), Addressing Base Erosion and Profit Shifting, which found that multinationals are using strategies that allow them to pay as little as 5% in corporation tax (CT), in contrast with smaller businesses whose CT bills are up to 30%.

PwC and Deloitte were also in attendance at the meeting, along with NGOs Christian Aid, ActionAid and Save the Children.

HMRC said:

‘We are grateful to business and the other attendees for the time and energy that they put into the event. We will continue to talk to business as the work progresses to understand how developing options deal with the problem areas identified, and how they impact on business models and inward and outward investment to and from the UK.’