September 2007 Archives
It's been a long time since this blog featured stories of companies threatening to emigrate (see, for example here and here) due to the UK tax and regulatory burden. This time, however, the news is of traffic in the opposite direction, in this case, from Norway to the UK.
Some big shipping companies in Norway, in protest at proposed changes to the tonnage tax system in that country, are threatening to re-domicile to the UK. It is estimated that the proposed tax rules will have the effect of landing the Norwegian shipping industry with a tax bill of just over $2bn. This is because, under the old rules, payment of tax could be deferred so long as certain conditions were met. This rule has been in place since 1996, with Norwegian companies taking full advantage of it. Now, it is proposed that two-thirds of the tax deferred over the past ten years be paid by the shipping companies concerned.
Outrageous, and it is easy to see why the shipping companies are threatening to leave. Never mind that the companies are to be given ten years in which to pay over the deferred tax, whatever happened to certainty in the law? The shipping companies, on meeting the conditions imposed by Norwegian tax law, were quite entitled to retain the tax credits. To then be told that the Government had changed its mind, and wanted the money after all, one can see how that would rankle.
I am interested to see if Norway gets away with imposing this retrospective tax. Maybe the threat of a mass exodus of shipping companies would force them to think twice. Closer to home, though, I wonder whether the British Government is watching all this, and wondering what, if any, lessons it can learn from Norway's brazen behaviour. The prospect of levying a blatantly retrospective tax would be too tempting an opportunity to pass up. Heaven knows there are so many areas in the UK tax system that could be vulnerable to such an attack.
An EU-wide study by KPMG has found substantial support for the European Community's proposed Common Consolidated Corporate Tax Base (CCCTB). The study sought the views of tax professionals in over 400 companies across the European Community, and 78 per cent of respondents approved of the CCCTB.
The rationale behind the CCCTB is to provide a consolidated tax base for companies in their activities across the European Union. If it all works as intended, a company in a member state would not need to feel its way around the different company tax regimes in all the countries of the European Community in which it does business. Instead, the CCCTB will provide a uniform formula according to which the company's profits should be calculated. The profits so determined will be allocated to the countries where that company does business, and taxed in those countries using their tax rates.
Therefore what is being proposed is not a uniform rate, rather it is a uniform way of determining profits, and allocating them back to the relevant countries.
To read the KPMG press release, click here.
I must say, I was surprised by the high percentage of respondents in support of the proposal. I suppose, the bigger the company, the more desirable a uniform system could be. A company operating in many countries in the EU could be spared a lot of uncertainty by having just one set of rules to consider. A smaller company, on the other hand, with operations in perhaps one other country, may not be that concerned, particularly if that other country is one with which it has had so many dealings, to the point that it is well acquainted with its rules.
The proposals should reduce, to some extent, the power of national governments to use tax policy to influence matters at home. For instance, a Government may wish to give incentives by allowing certain allowances or deductions in determining profits. To what extent will this power be reduced? We already have State Aid rules to deal with some of these issues, but I suppose this goes one step further.
I have many questions about how the CCCTB will work in practice. The proposals will be published next year, making things a lot clearer then.
Remember the offshore disclosure facility set up by the taxman earlier in the year? I blogged about it here. To recap, the taxman got a court order forcing five high street banks to disclose details of its offshore account holders. The aim was for the taxman to look through those records in order to discover any undeclared income that should have been charged to UK tax. The taxman then extended an amnesty of sorts to all such account holders, giving them until 22 June to declare if they wanted to confess, and then up until 26 November 2007 to make a full declaration of any unpaid tax. The late payment penalty is being reduced in such cases, from a possible 100 per cent, to 10 per cent. However, all the back tax owing must be paid, as well as interest.
Anyway, following on from that, the taxman has decided to spread his net further. He has received gratefully the information given by the five banks, and now would like some more from other banks and financial institutions. To this end, he is attending a meeting today with 170 banks and financial institutions. The meeting is being described as 'exploratory'. The taxman would like to discuss possible areas of co-operation with the institutions. Based on what he learns from today's meeting, we may be seeing another 'not-quite-amnesty' pretty soon.
There were reports today in the media that the taxman was planning an inheritance tax 'crackdown'. This was in relation to gifts made by a deceased person within the last seven years of his life. Inheritance tax law provides for these to be caught by the inheritance tax rules. The purpose of this is to ensure that people do not decrease their inheritance tax liability by giving away their assets before they die, thereby leaving the taxman with a reduced estate to tax on their death.
So anyway, the story today was that the taxman was getting suspicious that some estates had escaped the charge to inheritance tax because gifts given in the seven years before death had not been declared to the authorities. So the taxman announced that whenever inheritance tax forms were submitted to him, he would be paying particular attention to 'lifetime transfers', in order to discover if any gifts had been given away by the deceased in the past seven years. Click here to read the taxman's statement, contained in the August 2007 edition of the IHT and Trusts newsletter.
This news sparked alarm all over the place. Tax advisers were concerned about the administrative consequences; bereaved family members and friends were concerned about being put through the stress of an investigation by the taxman; and opposition politicians have concluded that this is just more evidence of Gordon Brown's 'greed' for cash. There were also fears that the taxman would start aggressively demainding to see the bank statements of the deceased, and possibly even those of bereaved family members, as well as any other financial information that he thought necessary. I think that all these concerns and fears are well-founded.
Anyway, following the outcry, the taxman has now issued a statement that he did not mean to be quite as aggressive. Apparently, it was all down to a poor choice of words in the newsletter, which, the taxman concedes, was 'poorly worded and aggressive'. (I don't have a link to the statement, but here is AccountancyAge's report on it.)
Hmm. So that's the end of that, then. One wonders if the taxman would have backed down so quickly had there not been an outcry from all those quarters. While the taxman is perfectly entitled to collect tax due and owing, and while the original statement was not exactly proposing a change in the existing law, the taxman must recognise that there is a place for sensitivity, even in the collection of taxes. I think he has learned that lesson tonight. Let's hope that it's a lesson that endures.
The taxman's long-held view has been that where there is an all-inclusive fee that covers all the services in such a centre, then that indicates a single supply for VAT purposes. So a membership fee that entitles the member to use all the facilities, would attract VAT.
The situation is different where the leisure centre charges different fees for different services. So where a visitor to a leisure centre is charged based on what services he uses, then the exact VAT position of the service can be taken into account. So let's take as an example a customer who does not pay a membership fee, but is instead charged based on what he uses in the gym. If he avails himself of, say, the swimming tuition, there will be no VAT to pay, as that would be exempt. If, on the other hand, he used the sauna, then VAT would be payable.
Contrast that with a member who pays an annual fee. The court's view was that his fee is a single supply, amounting to a right to exercise and enjoy the use of the facilities as and when and to whatever extent required. As the member can use whatever he likes, it is not possible to know at the outset whether he would use only VAT exempt services, VATable services, or a mixture of both. The membership fee is therefore subject to VAT at the standard rate (17.5 per cent).
However, if the fee entitles the member to use services, all of which would have been exempt if he had paid for them individually, then the taxman accepts that there is no need to charge VAT on the fee.
Click here to read the taxman's statement on the court case.
This judgment was given in May, but the case has just come back again into the news. The Telegraph today reports on the judgment, against the backdrop that the taxman's determination to collect the VAT (has he any choice?) undermines the Government's stated aim of getting us all fit and healthy.
The concern is that the Highland Council case is being extended by the taxman to apply, not just to local authorities, but to leisure trusts as well. The accountants, Baker Tilly, make the excellent point that a leisure trust, which is an 'eligible body' for VAT purposes, has the right to exempt from VAT the supply of sporting facilities to the public.The Highland Council case wouldn't be that much an issue for private gyms, as many of them already charge VAT on annual fees. In addition, membership schemes, such as sports clubs run by non profit-making bodies, do not come within the Highland Council decision.
© Photographer: Cthoman | Agency: Dreamstime.com
EasyJet would like to see air passenger duty (APD) scrapped. (Someone tell them that that battle has already been fought, and lost.) Their reasoning is that, if there is to be a tax on travel, instead of it being levied on individual passengers, it would be better, for environmental reasons, to levy it on individual flights, irrespective of how many passengers they carried. They believe that this would discourage airlines from operating flights with half-empty planes.
Well, yes. But what stops an airline from charging its passengers a premium on flights that are bound to be below full capacity? Even if not that, the airline would still find another way to pass on the cost to the passenger. That, after all, is what generally happens in business.
Easyjet has recently acquired some new aircraft, and would like to see older planes with more CO2 emissions taxed at a higher rate. I suppose it makes sense, but I am yet to be convinced that more environmental taxes are needed anywhere at all, least of all in the aviation sector.
Friends of the Earth have no such reservations. For starters, they would like to see VAT on air travel. They obviously do not realise that, as VAT paid in the course of a trader's 'economic activity' can be reclaimed by the trader, the only person who is out of pocket VAT-wise, will be the poor passenger who is taking a non-business flight. So charge VAT all you like, businesses will just reclaim it, as it is revenue-neutral for them. The only person taking the tax hit will be the holiday maker. Not very sensible now, is it?
More LibDem madness. Well, they aren't an entirely useless party, existing as they do to remind us of the dangers of placing power into the hands of crazy people.
Their leader, Sir Menzies Campbell, has breathlessly informed us of his desire to increase taxes on the rich, citing in support an opinion poll that showed that a majority of people felt that the rich were not taxed enough. All very well, that, except that the respondents in the poll were talking about those earning over £100,000. Sir Ming's definition of 'rich', however, is an earning threshold of £70,000.
Yes, £70,000. Even if we were to accept that a school headteacher earning that sum could be described as rich, what about the fact that Sir Ming's definition applies 'per household'? Therefore, a household where the combined income of two working adults is £70,000 (not at all uncommon) would be classed as rich by the Lib Dems, and subjected to even higher rates of tax.
Don't see this policy making it into their election manifesto, somehow.
Judgement has been given in the case brought by the Federation of Tour Operators (FTO), in which they sought judicial review of Gordon Brown's decision to increase air passenger duty. I blogged about it here.
As well as opposing the increase, the FTO also argued that air passenger duty was itself an unlawful tax.
Unfortunately for the FTO, the judge disagreed with them on both grounds.
The judge held that:
- the imposition of air passenger duty, and its increase, were not prohibited by the 1944 Chicago Convention on International Civil Aviation;
- the measure also did not breach article 49 of the EC Treaty (which prohibits restrictions on freedom to provide services within the EC).
The judge also held that, even if the measure had breached art 49 of the EC Treaty, it would still have been OK because it satisfied the 'proportionality' requirement.
Bad news for the FTO. I wonder what, if any, action they will take next.
Click here to read the judgment. I am reading it now, and will provide some analysis later.
Things have gone somewhat quiet, but the consultation period is still open for the Government's proposals for changes to the capital allowances regime (pdf). Comments are invited up until 19 October 2007.
The Government is consulting on:
- the proposed Annual Investment Allowance (AIA); and
- the proposed rules for 'integral fixtures'.
We will discuss integral fixtures in a later post. The rest of this post summarises the Annual Investment Allowance.
I've just been reading the Taxpayers' Alliance recent research into green taxes in the UK. Based on the premise that green taxes are needed to correct for the 'social cost' of CO2 and other emissions, the report finds that, in actual fact, green taxes levied in the UK not only compensate for the 'social cost', but on almost every measure, far exceed it.
In simple terms, we are paying more than enough in green taxes for whatever damage is being done to the environment, etc.
The reasonable conclusion to draw from this is that there is therefore no need to impose new green taxes, or to raise existing ones. In fact, going by the figures in the report, we are all due a tax cut.
The report is 33 pages long, and makes for very interesting reading. It covers the main environmental taxes, and in determining the 'social cost', draws across the board from a range of environmental studies. Not at all prolix, very well-written, and definitely worth a read.
You can download it here.
