Tax Journal on "government approved tax avoidance"

Posted by Christie Malry on April 18, 2012 at 8:58 am

A special low rate of UK corporation tax on finance profits from overseas financing within multinational groups will offer a ‘very significant’ benefit to groups setting up a structure that represents, according to a leading tax expert, ‘almost government-approved tax avoidance’.

Although, as you might expect, Ritchie approves heartily, this is just silly.

While, technically, you could have government approved tax avoidance, this ain't it. An example of government approved tax avoidance would be where government instructed HMRC to turn a blind eye to cases of tax avoidance. Imagine the shitstorm that would create in Parliament when it came to light.

What's happening in reality is that the government has proposed changes to the way in which controlled subsidiaries are to be taxed, with a special rate for controlled finance companies. These will be voted on in Parliament. Once passed by Parliament, it's completely idiotic to argue that a company using the structure expressly approved by Parliament is somehow acting against the will of Parliament. So it cannot be tax avoidance, by definition.

Incidentally, George is doing something quite clever. He's trying to hoover up all the finance companies in Europe by taxing them at the cutdown rate. That should see the UK get 5.5% of a much larger pie instead of the standard corporation tax rate on a smaller one. The other European countries should be whining, but no one in the UK should complain. We're bringing economic activity to the UK and taxing it. That's a good news story, no?

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