Fixing the tax system can't come at the expense of investment in the UK | EEF

Fixing the tax system can't come at the expense of investment in the UK

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Today we've made some comments on the growing uncertainty we see being generated by the public debate on corporate tax avoidance. While there are areas that do need reform, particularly in the area of international taxation, the lack of clarity about what the debate is focused on and the likely government response are damaging confidence to invest in the UK.The manufacturing sector is trade and investment-intensive. Nearly 13% of capital investment, half of the UK's exports, and three quarters of our business expenditure on R&D come from manufacturing. The country needs manufacturing companies investing and growing here.Companies need every encouragement, particularly as nearly half the investment in UK manufacturing comes from foreign-owned companies - a much higher proportion than Germany, France, Italy, or Spain.There is a legitimate debate to be had on reforming the corporate tax system but EEF sees five problems with the current debate that are providing more heat than light:1. The term ‘tax avoidance' is being used to describe lots of different behaviours2. Debate fails to acknowledge that parliament decides what is a ‘fair amount of tax' through law3. Much of the issue centres around international rules, which require international agreement to reform4. Proposals with serious unintended consequences are being put forward with little challenge5. The debate is undermining efforts to promote the UK as a place to invest and do businessEEF's analysis notes that currently counter-productive proposals are being aired with little challenge in the clamour from public figures to be seen to be ‘doing something'. For example country-by-country reporting might sound attractive but it would add complex and costly administrative burdens to companies while simply deluging the public with more incomprehensible data. If companies are struggling to explain how their tax affairs line up with the UK's system - how much more complicated will that be with 20 different jurisdictions involved?Revenue authorities issuing kite marks defining companies who pay their ‘fair share' might sound like a way of rewarding good tax behaviour - but it begs the question who decides what is fair outside the law? And with the law running to many thousands of pages, with judges very often struggling to discern the 'intent' of parliament - where apart from the law should a company look to make sure it is acting fairly?Our sector has not been the focus of media headlines on this issue - but in one sense that is cause for concern. A hasty response to tackle a specific set of behaviours for specific companies could have negative impacts on a much wider group of companies that were never intended targets.EEF is therefore setting two challenges for the government. Firstly, the substantive response to legitimate public concern about corporate tax avoidance must not undermine the objectives of the government's broader reform programme to deliver the most competitive tax system in the G20.Secondly, we need a much more active government in this debate. It needs to be clearer about the problem it sees as corporate tax avoidance, clearer about how it intends to address it, and clearer about when and how it will act.EEF's specific recommendations to the government are:1. The areas of obvious abuse where there is a clear consensus on the need for action need to be spelt out by government so the public is clear what we are focused on2. More actively manage the reform process by clearly setting out its timeframes and expected endpoint and setting out opportunities for consultation3. Better application of current rules should be considered as an option alongside or instead of changing any rules4. Avoid unilateral or knee-jerk responses to issues with a complex international character that require considered, multilateral responses5. Explicitly consider an ex-ante assessment of benefits before implementing any new disclosure requirements that will add to administration costs and complexity6. Any proposed changes need a thorough assessment of the impact on investment and growth for both the economy and individual sectors, including whether the changes will support much needed rebalancing in the economy towards more investment and net exports7. Aside from their substantive impact, any proposed changes should be assessed for their potential to deliver greater confidence from the public in the corporate tax system.


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