UK Government Announces Tax Avoidance Clampdown

David Gauke, Exchequer secretary to the UK Treasury, has announced a number of changes to legislation to tackle tax avoidance. Some of these changes will take immediate effect.

Together, these announcements will protect forecast revenues estimated at up to £5bn over the next four years, and are expected to raise over £2bn in additional revenue during the course of this parliament.

These measures take the necessary steps to protect the Exchequer, and maintain fairness for the taxpayer, while providing certainty for businesses whose investment will encourage the re-balancing of the economy and job creation, according the government.

Two measures with immediate effect will tackle tax avoidance by:

  1. Preventing groups of companies using intra-group loans or derivatives, to reduce the group’s tax bill.
  2. Addressing schemes where a company does not fully recognise certain amounts in its accounts involving loans and derivatives.

Three measures with further detail to be set out shortly, will tackle tax avoidance through:

  1. Addressing the practice of disguised remuneration.
  2. Stopping investment companies retrospectively changing the currency they prepare their accounts in for tax purposes.
  3. Tackling businesses who artificially split the supply of services to reduce VAT.

In addition to these measures, Graham Aaronson QC will lead a study into a General Anti-avoidance Rule (GAAR). This study will consider whether a GAAR could deter and counter tax avoidance, while providing certainty, retaining a tax regime that is attractive to businesses, and minimising costs for businesses and HMRC. The UK government is committed to predictability and stability for the UK tax system, and would not introduce a GAAR without further formal public consultation.

Frédéric Donnedieu de Vabres, chairman of Taxand, an independent global organisation of specialist tax advisors to multinational businesses, believes that the UK GAAR will bring difficulties for multinationals, particularly in relation to their tax planning.

“The introduction of a GAAR would bring considerable uncertainty to many multinationals engaged in legitimate tax planning and would force many to reconsider their approach to the UK as a key country for future investment,” he said. “The knock on effect of such changes can be sizable and can impact on multinationals’ standing in the eyes of their global investors, as they seek to understand the impact on returns.”

Finance and tax directors of multinational businesses are dealing with multiple jurisdictions across the globe, managing unco-ordinated approaches to tax planning, all of which put national interests above anything else.

“These companies are not seeking to ‘evade’ tax, but are rightly engaging in legitimate tax avoidance activity, trying to ensure the long-term stability of their businesses through the prudent and proper planning expected by shareholders, to which they have a fiduciary duty to maximise returns,” he added.

Multinationals are also facing a wave of potential new taxes in the US. Although a deal between Democrats and Republicans may be on the cards, tax cuts could still be reversed, causing temporary uncertainty to multinationals and long-term damage to investment by multinationals in the US, if cuts are put in place, according to Donnedieu de Vabres.

Taxand Survey

In a Taxand survey conducted among its advisors, nearly half identified complex tax rules and legislation introduced by governments and tax authorities across the globe as the key disincentive in attracting investment, putting this above high corporate income tax rates as the most important factor in discouraging inward investment.


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