Proposals by the Organisation for Economic Co-operation and Development (OECD) to clamp down on tax ‘base erosion and profit shifting’ (BEPS) have come under fire from the British Property Federation (BPF).
In its response to the OECD’s consultation, the BPF claims that plans to restrict the tax deductibility of debt for real estate investors would have a damaging impact on investment in the built environment. This is because the real estate industry’s capital intensive nature and considerable use of debt finance would lead to it being particularly affected by the proposals.
The BPF adds that if the tax deductibility of debt is restricted, it will increase its overall cost to real estate borrowers. This is likely to reduce the amount of debt capital that the industry can deploy, which will lessen investment in the built environment. Curtailing investment in the built environment will, in turn, negatively impact on the UK’s economy. Depending on how they are implemented, the proposals “could also result in extensive administrative costs for real estate businesses”.
The Federation also suggests that the OECD, at the request of the Group of 20 (G20) major economies, has had to carry out “an incredibly comprehensive review of taxation avoidance in a short time frame”, meaning that the BEPS proposals are not as well-targeted as they could be. This means that tough rules designed to tackle the worst of the avoidance might end up applying to everyday commercial transactions, causing ‘collateral damage’ and concern for law-abiding taxpayers.
“Tackling tax avoidance is important, and we understand that it has to be made a priority,” said Ion Fletcher, the BPF’s director of policy (finance). “We are concerned, however, that in the rush to meet the G20’s targets, the OECD is forsaking valuable thinking time, resulting in blunt polices that capture innocent commercial transactions.
“The current proposals to reduce the tax deductibility of debt, for example, could be a real deterrent to those who invest in improving the UK’s built environment and infrastructure. We need them to be properly targeted so that they do not discourage development.”
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