The UK Parliament’s Treasury Select Committee has launched an inquiry into the UK corporate tax system, covering tax policy and the tax base. Written evidence has been requested by 31 March 2016. The terms of reference include the making of tax policy; the shrinking tax base and solutions to the problem; and other ways to mitigate the shrinking tax base addressing tax avoidance and non-compliance.
With regard to tax policy the inquiry will look at whether the Treasury has complied with the principles of tax policy and if the entities involved in tax policy have performed adequately. The inquiry will look at whether the Treasury has the necessary expertise to design tax policy and whether it makes effective use of advice from HMRC. The inquiry will consider what simplification measures now need to be implemented, whether or not they have been considered by the Office of Tax Simplification (OTS).
The inquiry will look at the extent to which the corporate tax base is being eroded as business is being conducted globally. Questions being looked at are whether certain sectors are more mobile and if some sectors make a disproportionate contribution to the tax yield. The inquiry will also examine other changes to the tax base and look at how the UK government should react to them.
Taking into account the inevitability of there being some kind of tax gap and given the difficulties in defining the correct amount of tax that should be collected the inquiry will look at whether the government should tackle the shrinking corporate tax base by looking at more radical changes to the system. This involves consideration of the type of corporate tax structure that would ensure that tax is collected in line with the principles of tax policy and in a way that minimizes the risk of base erosion. For example business taxation could be based on turnover rather than profits as recently discussed in the media. The government could consider other forms of taxation especially when raising tax from businesses and wealthy individuals. The inquiry will consider if there is a case for a wholesale review of capital taxation.
The inquiry will look at whether recent UK tax initiatives such as the General Anti Abuse Rule (GAAR), the accelerated payments scheme and notifications under the disclosure of tax avoidance schemes (DOTAS) rules have been effective in tackling tax avoidance. It will also consider to what extent the measures on base erosion and profit shifting (BEPS) and common reporting standards can help in collecting tax. The inquiry will consider what further international cooperation is required.
The UK budget announcements in March 2015 included a challenge to professional bodies to take a lead in setting and enforcing clear standards in dealing with the facilitation and promotion of tax avoidance. The inquiry will consider if this move is likely to succeed in promoting more responsible behavior from advisers and will consider the necessity of more regulation for advisers. The inquiry will also consider if anything can be done to promote a culture of tax compliance among taxpayers generally.
With regard to tax administration the inquiry will consider if the merger of revenue and customs into one body has been a success and whether there have been too many subsequent reorganizations within HMRC. The inquiry will also look at the Treasury and HMRC plans for making tax digital and consider if it is adequately designed and acceptable.
