Reduction in corporation tax reflects ‘the change in the economic environment and falls in the rate of tax’, say PwC and the Hundred Group
There has been a dramatic change in the makeup of taxes paid by the UK’s largest businesses, and corporation tax is now significantly outweighed by other taxes borne, according to the latest ‘total tax contribution’ report published by PwC and the Hundred Group of finance directors.
PwC, noting the current ‘unprecedented’ public interest in companies’ tax affairs, said the shift reflected a change of government policy. Mary Monfries, the firm’s head of tax policy and regulation, said: ‘The current debate sometimes confuses compliance with the rules with tax policy itself. Government policy has changed and our study shows the picture of tax paid has changed as businesses comply with the rules.’
‘Ill-informed’
In a foreword to the report, Andrew Bonfield, chairman of the Hundred Group’s tax committee, and PwC partner Andrew Packman warned that although the debate was understandable, commentary was ‘at times ill-informed’. There was a real concern, they said, that negative messages were undermining recent ‘positive developments’ including reductions in the main rate of corporation tax, reform of the controlled foreign companies rules and the introduction of the patent box, which had persuaded a number of companies to return to the UK.
However, the report itself did not address the extent to which UK corporation tax bills have been reduced by means of ‘profit-shifting’ to low tax jurisdictions. While allegations of tax avoidance by some multinationals have aroused anger and fierce criticism from politicians of all parties, many tax professionals regard management of a group’s effective tax rate as normal tax planning that is clearly within well-established tax law.
In evidence given yesterday to a House of Lords committee examining the draft Finance Bill, tax barrister Graham Aaronson said groups operating in a large number of countries could ‘pick any country they want’ in which to locate functions such as holding intellectual property and procurement of raw materials. This, together with tax competition between states and a network of double tax treaties based on the arm’s length principle, amounted to ‘chaos’, he told peers. ‘You can’t stop it. You can’t stop someone deciding that the Netherlands is a good place to hold intellectual property,’ he said.
Representatives of the big four accountancy firms will be questioned next week by members of the Commons public accounts committee, who are investigating tax avoidance. Reuters quoted ‘sources close to the committee’ yesterday as saying that ‘the tax advisers would likely receive a harsh grilling’.
Reuters reported: ‘A combative hearing could be damaging for the firms, which have long enjoyed considerable influence in tax policy making in the UK.’
‘Total tax contribution’
The PwC/Hundred Group report said that in 2012, for every £1 in corporation tax, another £2 was paid in other business taxes borne. ‘In 2005 the equivalent figure for those other taxes was £1. Over that period, the total taxes borne have increased by 19%,’ it said.
‘Other taxes borne’ increased by 58% to almost £17bn, the report indicated. Corporation tax fell by 17% to £8bn, representing 19% of the government’s corporation tax receipts.
The reduction in corporation tax reflected ‘the change in the economic environment and falls in the rate of tax’, it said.
The Hundred Group represents the views of the finance directors of FTSE 100 companies, several large UK private companies and some UK operations of multinational groups. Bonfield said the results showed ‘the continued significant contribution of Hundred Group companies to the UK economy, despite the double dip recession’.
He added: ‘We’re in the middle of a well trailed programme for reducing the rate of corporation tax while other business taxes, such as employer’s NICs and irrecoverable VAT, have risen. These other taxes tend to be easier to collect and less volatile since they’re not dependent on profits.’
A joint press release said taxes borne by the Hundred Group in 2012 were £24.8bn (£25.5bn for 2011). ‘The end of the “one-off” bank payroll tax and fall in corporation tax was offset to some extent by the bank levy, increases in irrecoverable VAT, employers’ NICs and business rates. Taxes collected have been relatively stable and total £52.3bn (£51.7bn for 2011).’
It added: ‘The study highlights the wider contribution beyond tax made by the UK’s biggest businesses to the economy. The Hundred Group provides employment to 2m people, 7% of the UK workforce. Some 15.8% of UK expenditure on capital investment (£19bn) and 14.4% of UK research and development (£2.5bn) was contributed by half of the companies participating in the survey.’
According to the report, ‘taxes collected’ are those ‘generated by a company’s operations but which do not impact on the results; the company generates the commercial activity giving rise to them and then collects and administers them on behalf of HMRC’.
The ‘total tax contribution’ methodology has its critics, and many smaller businesses would argue that they also bear taxes other than corporation tax as well as the burden of accounting for PAYE and VAT.
However, as multinationals continue to face scrutiny over their corporation tax bills, a recent intervention by KPMG indicates support for PwC’s approach. Last month Jane McCormick, head of tax at KPMG in the UK, said that in order to inform the tax debate corporates ‘must start thinking about how they could be more transparent in their reporting to provide more information on their tax affairs’. Without transparency, she said, it was ‘very difficult to understand what is going on in tax’.
She added: ‘We believe that corporates are going to have to embrace transparency to explain what taxes they are paying and where they are paying them. By doing so they will also illustrate how their presence contributes to the economies in which they operate whether that be by generating employment (income taxes), sales (indirect taxes), paying business rates or through corporation tax.’
Reduction in corporation tax reflects ‘the change in the economic environment and falls in the rate of tax’, say PwC and the Hundred Group
There has been a dramatic change in the makeup of taxes paid by the UK’s largest businesses, and corporation tax is now significantly outweighed by other taxes borne, according to the latest ‘total tax contribution’ report published by PwC and the Hundred Group of finance directors.
PwC, noting the current ‘unprecedented’ public interest in companies’ tax affairs, said the shift reflected a change of government policy. Mary Monfries, the firm’s head of tax policy and regulation, said: ‘The current debate sometimes confuses compliance with the rules with tax policy itself. Government policy has changed and our study shows the picture of tax paid has changed as businesses comply with the rules.’
‘Ill-informed’
In a foreword to the report, Andrew Bonfield, chairman of the Hundred Group’s tax committee, and PwC partner Andrew Packman warned that although the debate was understandable, commentary was ‘at times ill-informed’. There was a real concern, they said, that negative messages were undermining recent ‘positive developments’ including reductions in the main rate of corporation tax, reform of the controlled foreign companies rules and the introduction of the patent box, which had persuaded a number of companies to return to the UK.
However, the report itself did not address the extent to which UK corporation tax bills have been reduced by means of ‘profit-shifting’ to low tax jurisdictions. While allegations of tax avoidance by some multinationals have aroused anger and fierce criticism from politicians of all parties, many tax professionals regard management of a group’s effective tax rate as normal tax planning that is clearly within well-established tax law.
In evidence given yesterday to a House of Lords committee examining the draft Finance Bill, tax barrister Graham Aaronson said groups operating in a large number of countries could ‘pick any country they want’ in which to locate functions such as holding intellectual property and procurement of raw materials. This, together with tax competition between states and a network of double tax treaties based on the arm’s length principle, amounted to ‘chaos’, he told peers. ‘You can’t stop it. You can’t stop someone deciding that the Netherlands is a good place to hold intellectual property,’ he said.
Representatives of the big four accountancy firms will be questioned next week by members of the Commons public accounts committee, who are investigating tax avoidance. Reuters quoted ‘sources close to the committee’ yesterday as saying that ‘the tax advisers would likely receive a harsh grilling’.
Reuters reported: ‘A combative hearing could be damaging for the firms, which have long enjoyed considerable influence in tax policy making in the UK.’
‘Total tax contribution’
The PwC/Hundred Group report said that in 2012, for every £1 in corporation tax, another £2 was paid in other business taxes borne. ‘In 2005 the equivalent figure for those other taxes was £1. Over that period, the total taxes borne have increased by 19%,’ it said.
‘Other taxes borne’ increased by 58% to almost £17bn, the report indicated. Corporation tax fell by 17% to £8bn, representing 19% of the government’s corporation tax receipts.
The reduction in corporation tax reflected ‘the change in the economic environment and falls in the rate of tax’, it said.
The Hundred Group represents the views of the finance directors of FTSE 100 companies, several large UK private companies and some UK operations of multinational groups. Bonfield said the results showed ‘the continued significant contribution of Hundred Group companies to the UK economy, despite the double dip recession’.
He added: ‘We’re in the middle of a well trailed programme for reducing the rate of corporation tax while other business taxes, such as employer’s NICs and irrecoverable VAT, have risen. These other taxes tend to be easier to collect and less volatile since they’re not dependent on profits.’
A joint press release said taxes borne by the Hundred Group in 2012 were £24.8bn (£25.5bn for 2011). ‘The end of the “one-off” bank payroll tax and fall in corporation tax was offset to some extent by the bank levy, increases in irrecoverable VAT, employers’ NICs and business rates. Taxes collected have been relatively stable and total £52.3bn (£51.7bn for 2011).’
It added: ‘The study highlights the wider contribution beyond tax made by the UK’s biggest businesses to the economy. The Hundred Group provides employment to 2m people, 7% of the UK workforce. Some 15.8% of UK expenditure on capital investment (£19bn) and 14.4% of UK research and development (£2.5bn) was contributed by half of the companies participating in the survey.’
According to the report, ‘taxes collected’ are those ‘generated by a company’s operations but which do not impact on the results; the company generates the commercial activity giving rise to them and then collects and administers them on behalf of HMRC’.
The ‘total tax contribution’ methodology has its critics, and many smaller businesses would argue that they also bear taxes other than corporation tax as well as the burden of accounting for PAYE and VAT.
However, as multinationals continue to face scrutiny over their corporation tax bills, a recent intervention by KPMG indicates support for PwC’s approach. Last month Jane McCormick, head of tax at KPMG in the UK, said that in order to inform the tax debate corporates ‘must start thinking about how they could be more transparent in their reporting to provide more information on their tax affairs’. Without transparency, she said, it was ‘very difficult to understand what is going on in tax’.
She added: ‘We believe that corporates are going to have to embrace transparency to explain what taxes they are paying and where they are paying them. By doing so they will also illustrate how their presence contributes to the economies in which they operate whether that be by generating employment (income taxes), sales (indirect taxes), paying business rates or through corporation tax.’
