Firms fear tax crackdown may hurt innocents

Tim Wallace
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A CRACKDOWN on firms who manipulate international structures to dodge tax could wrongly hit innocent businesses with extra tax bills, the Confederation of British Industry (CBI) warned yesterday.

A diverted profits tax has been proposed to stop firms artificially shifting profits to overseas units, cutting their UK tax bills.

The tax will be charged at 25 per cent of diverted profits relating to UK activity. It will hit any firm which either operate in the UK but avoid a permanent establishment here, or who base some units in low tax countries but which “lack economic substance.”

But the CBI said it is not concise enough.

“The legislation will subject many groups who do not engage in abusive tax arrangements to – at best – an additional layer of compliance, and – at worst – an erroneous tax liability,” said deputy director-general Katja Hall.

She wants firms to carry out a “gateway test,” where they assess themselves to judge whether or not they fall within the scope of the tax.

“This will ensure the legislation is targeted solely on abusive arrangements,” she said.