The Devil Is In The Detail
I had previously praised the UK Government’s Autumn Statement for its long overdue reform of stamp duty land tax on property purchases – but against my better judgment as it turned out. They often say that the devil is in the detail of Government Budget statements, and it transpires that the Autumn Statement is home to a particularly ugly demon taking the form of the so-called “diverted profits tax.” One can see why people get hot under the collar about corporate tax avoidance, when most individual taxpayers see a quarter to a half of their pay taken by the Government before it even hits their pockets and with few legal avenues open to reduce individual tax liability for most salaried workers. But it’s one thing for a Government to talk tough on multinational tax dodging, and quite another to destroy a carefully cultivated reputation as a friend to business with the stroke of a pen. Actually, it’s more than one stroke, as OECD Secretary General Pascal Saint Amans observed last week. The draft DPT legislation stretches to 18 pages, and it’s certainly saying something when the OECD appears bamboozled by a tax measure. Which is, indeed, one of the problems with the proposal. I’m not sure what the worst thing about the DPT is – the tax itself, or the fact that others are keen to ape it. Australia’s Finance Minister Joe Hockey, prominent among them, doesn’t seem to realize how bad an idea it is; not only does it undermine the OECD’s BEPS work – with Saint Amans, too, criticizing the UK for jumping the gun – it is also riddled with flaws. It’s aggressive and punitive in nature, and the proposal, as drafted, once again stacks the dice against the taxpayer by handing sweeping powers to HMRC to determine who is playing by the rules and who isn’t, with few rights of appeal built in. It’s also at odds with the UK’s obligations under its vast network of double tax treaties, the result of which could be a cornucopia of tax litigation. I’m willing to give Osborne the benefit of the doubt that he hasn’t completely taken leave of his senses. Perhaps this is a calculated move – a suitably timed piece of multinational bashing with a general election six months down the line – rather than an attempt to curry favor with Gurría and Saint Amans et al. The UK is banking on the fact that by next year it will have the lowest corporate tax rate in the G20, and so multinationals will no longer be tempted to shift profits to tax havens, but perhaps the stick now outweighs the carrot.