A draft of the proposed new EU anti-tax avoidance directive has been leaked on the FT website. There is much to commend in it inclduing coordination on GAARs, interest deductibility and controlled foreign companies.
Innovative are proposals for exit taxation - to make tax inversion harder, and I welcome them.
But perhaps most especially this:
This is a direct attack on the idea of territorial taxation - which the UK has adopted since 2010. The draft directive clearly recognises that if a country - like the UK - says it will not tax income arising outside the country there is a massive incentive for companies to do whatever they can to record their income elsewhere - in a tax haven, for example - and then bring it back into the UK tax free.
The encouragement of taxation of funds arriving in the EU from places outside it is enormously important in this context and also is intended to stop the abusive of certain states used as entry points - Malta, for example.
If this is the direction of travel, I welcome it.
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Hello Richard
Bear with me and you will see what I am getting at.
The other day I noticed at least 3 cars that had been clamped within a few hundred yards..Nothing to do with parking. The notice on a windscreen indicated there had been non payment of car tax. 3days later I noticed an operator removing a wheel clamp. Obviously the motorist had paid the tax and the fine and so the DVLA was happy.
My thought were – “what a beautifully simple way for the DVLA to discipline errant motorists”.
It’s a pity that HMRC can’t come up with a similar scheme to persuade corporations to pay their tax.
What about this as an example. If a corporation making profits in the UK, and paying little or no tax, was told that it could not have the protection of limited liability status, I am sure it would concentrate the minds of their directors and share holder whose personal fortunes and masons would be on the line.
I am sorry if this is not the spot to air this idea. I know that it may be considered daft by experts, but sometimes daft ideas stimulate good ideas. I hasten to add that I am not an expert, and also that I realise any idea like this would require an act of parliament to implement change.
Best wishes and keep blogging. We need you to keep our sanity
I did actually include that idea here http://www.publications.parliament.uk/pa/bills/cbill/2013-2014/0029/140029.pdf Clause 8, I think
Interesting summary. After a superficial glimpse I come to think that this comes close to an export of German tax rules. In Germany there is an exit taxation (Wegzugsbesteuerung), limitation on interest deductibility (Zinsschranke) and CFC-rules broadly working the way described here (Hinzurechnungsbesteuerung). Just an observation, from bird’s eye perspective. Does Germany not incur tax losses in developing countries? Not so sure about that…And how would statutory tax rate threshold work in practice? If we tolerate a 12,5% legitimate corp tax in EU, we can hardly demand a higher rate (tighter threshold) abroad.
But then this smells like a recipe for exporting Malta’s tax regime, with high statutory tax rates, but a reimbursement mechanism, resulting in tax closer to 5%…is that what we seek?
instead of “incur” I should have said “cause”
Markus
All good questions
The Malta situation is the one that will need monitoring
But that it is there is a signal – and much of the rest is just BEPS, at best
Richard
To date I have not seen a single concept that could explain the fundamentalist zeal of the Brexit campaigners (the democracy flannel just does not wash with me). Now I read that EU is challenging the golden calf called “territorial taxation”.
Thank you Richard, this information is another piece of the jigsaw.
Will all be academic when the UK leaves the EU
If
And actually most is like BEPS so you rather miss the point
In this real world, so many of the EU directives are passed-down to the EU to be enacted into law/s from “higher” organisations. Vehicle standards, worldwide, are from the World Forum for Harmonization of Vehicle Regulations, that the UK, even bereft of the EU, would have little chance of avoiding them since it would be unable to sell abroad if not conforming to regulations.
Finance will be ok though, since they seem to have their own set of laws to avoid, or evade, or just ignore.
Politicians will hate being out of the loop, so much of their power will be removed and they would be little people again.
Spanish holidays will get a lot more expensive…but I suppose countries outside the EU may get cheaper?
I think brexit will be the final-final nail in the scotland/England union: I may move North!
Who cares?
Most people will not, either way.