TPA urges Osborne to scrap corporation tax

4 Mar 16

The TaxPayers' Alliance has called on George Osborne to replace the current system of corporation tax at next month’s Budget, saying the “outdated” system was no longer suitable for a modern economy.

In a briefing issued following reports that Facebook was preparing to change its corporate structure in order to pay more tax in the UK following criticism of its accounting methods, TPA chief executive Jonathan Isaby said this showed the need for reform.

“The fact that Facebook has taken a voluntary decision to change its structure so it pays more corporation tax just goes to show how absurd the system has become.

“The outdated tax system is simply not suitable for the modern, global economy and leaves the tax liabilities of multinationals open to honest dispute. Instead of announcing another round of ineffectual ‘clampdowns’ at the Budget, the chancellor should rethink corporation tax in its entirety.”

The low tax campaign group said its preferred reform was the introduction of a tax based on income distributed from capital, which was recommended by the 2020 Tax Commission supported by the TPA.

This reform would levy a tax on net capital corporate outflows, typically dividends and interest on loans. The 2020 Tax Commission report stated this should be set at a flat rate of 30%, and could function on a similar basis to the pay-as-you-earn system on wages, but was unlikely to be revenue neutral.

Isaby said corporation tax has lost all credibility and needs to be replaced by a simple and workable alternative.

“Successive governments have responded to the challenge of modernising our tax code by tinkering around the edges and adding more legislation to the system, which has only made matters worse. It is high time the government introduced radical changes to the system and getting rid of the discredited corporation tax would be a good place to start.”

Responding to the reported changes by Facebook, the Public Accounts Committee said multinational companies are not passive subjects of international tax rules.

Chair Meg Hillier said: “They choose how to structure their tax affairs and must acknowledge responsibility for those choices. In some cases this involves using complicated tax structures specifically designed to minimise their tax bills.”

MPs remained concerned about the effectiveness of HMRC in securing a fair deal for taxpayers from multinationals, she added, including in its controversial tax settlement with Google.

“The work of the Public Accounts Committee and continuing high levels of public anger about the behaviour of some corporations have done much to move these issues up the political agenda and we will see the effects of Facebook’s new arrangements in due course.”

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