Corporation tax and multinational enterprises
By Susan Cattell, Head of Tax Technical Policy
25 August 2020
Susan Cattell outlines ICAS recommendations for corporation tax and multinational enterprises.
What has ICAS recommended?
Provide a roadmap setting out the government’s long term policy intentions for the taxation of multinationals
Large businesses and multinational enterprises play a vital role as major contributors to the UK economy, job creators and collectors of tax revenues (VAT, income tax and NICs). Whatever the final outcome of Brexit, it is important that UK tax policy supports the government’s aim of ensuring that the UK remains an attractive place for multinationals to do business.
The tax system needs to be flexible to deal with change, but companies also need to be able to plan for the future with confidence. The Brexit referendum in 2016, together with the current coronavirus pandemic, has resulted in a long period of uncertainty for business. It is important that this uncertainty is not intensified by constant, unpredictable changes to the tax system. Large businesses would welcome a roadmap setting out the government’s long term policy intentions for the taxation of multinationals.
Support the work of the OECD on proposals for the international tax system and avoid introducing further unilateral measures, wherever possible
The introduction of unilateral measures such as the Diverted Profits Tax, or the Digital Services Tax, imposes additional compliance burdens and is likely to give rise to double taxation. An international approach to tackling the taxation challenges arising from multinational companies is preferable, where this can be achieved. The government should continue to support the work of the OECD on proposals to reform the international taxation system. Where unilateral tax measures are deemed to be essential to protect the UK tax base, these should be introduced on a temporary basis and replaced once international agreement has been reached.
It should be noted that much tax administration is ‘outsourced’ to MNEs, with new measures adding to this – for example, the proposed extension of the off-payroll working rules. The Corporate Criminal Offence and the Directive on Administrative Cooperation (DAC 6) are also very widely drawn: risk assessing and putting in place extensive procedures to comply is a considerable burden and has a significant impact on the cost of doing business.
Carry out proper consultation on proposals for Making Tax Digital for corporation tax – and bear in mind the interaction with digital tax systems in other jurisdictions
In implementing Making Tax Digital (MTD) for corporation tax, the UK should learn from other countries, which are increasingly adopting a digital approach to tax administration. The UK needs to bear in mind the interaction with digital tax systems in other jurisdictions because multinationals operate in many countries. If interaction is not considered the cost of compliance is increased. There should be a full consultation on the UK MTD proposals followed by a pilot which all companies can join from the beginning, and which covers an entire tax cycle.
Extensive digital reporting requirements are being imposed – with increasing amounts of data being made available to tax authorities internationally. It is not currently clear how MTD for CT might work in the UK but if it means that HMRC receives far more data some of the current reporting requirements should be removed.
The benefits of adopting our recommendations
- Providing clarity on the government’s future taxation plans allows businesses to plan for the future with confidence which should help to maintain and attract investment in the UK
- Developing and implementing an agreed approach to international taxation minimises administrative compliance burdens and helps to avoid double taxation
- Aligning MTD for multinationals with digital systems in other jurisdictions will reduce compliance burdens and improve reporting
- Implementing MTD for CT after proper consultation and with a full pilot will minimise disruption and improve efficiency
Join the debate
The recommendations in the ICAS Future of Tax paper were agreed by the ICAS Tax Board in 2020 and inform the work of ICAS Tax. They will be reflected upon and revised to reflect economic, social and political developments.
Please send us your feedback and comments by emailing tax@icas.com or login to the CA Connect forum, an area exclusive to members where you can post your views and discuss with others.
There are also opportunities to join ICAS tax committees to discuss these recommendations and many other tax policy and practical matters – email tax@icas.com to find out more about being a committee member.