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Taxation News

Summary of the latest news and developments in taxation
EU parliament to launch tax inquiry in the wake of the Paradise Papers
The EU parliament has voted in favour of launching a special committee, provisionally entitled Taxe 3, to tackle financial crimes, tax evasion and tax avoidance. The committee has been launched in the wake of the Paradise Papers, and will build upon work carried out by the Taxe 1, Taxe 2 and PANA inquiry committees, the latter of which was launched in the wake of the Panama Papers’ revelations in 2016. Taxe 3 will comprise of a committee of 45 MEPs and the inquiry will run for 12 months. The committee will need to be confirmed by a plenary vote on 1 March, but as it was negotiated across political groups, this is largely a formality. Some key tax issues within the committee’s remit are to look at tax evasion and tax avoidance in relation to the digital economy and VAT fraud, particularly how EU VAT rules were circumvented in light of the Paradise Papers. The committee will also monitor the progress of member states in removing tax practices that allow tax avoidance or tax evasion which are harmful to the functioning of the single market. Analysing the third-country dimension in financial crime will also be within the scope of the inquiry. Some measures are likely to more specifically impact the UK, in particular its crown dependencies.
09 Feb 18

HMRC large business tax enquiry duration rises to 3 years
The length of time taken to settle HMRC investigations has increased to three years, according to law firm Pinsent Masons. In 2016-17, the average length of time to settle a tax investigation rose to 34 months, up from 31 months in 2015-16. Pinsent Masons said that the increase in duration was “putting strain on businesses”, as investigations took up senior management time, increased costs and resulted in businesses being exposed to longer periods of financial and legal uncertainty. The law firm attributed the increase in investigation time to HMRC’s unwillingness to drop cases when technical points were disputed, despite the tax authority sometimes presenting a weak case. Pinsent Masons also said that HMRC was placing more focus on routine transactions as there were now fewer avoidance schemes to challenge. HMRC follows a Litigation and Settlement Strategy framework when entering tax disputes, which Pinsent Masons said makes it difficult for HMRC teams to settle disputes for less tax that the full amount initially claimed. The tax authority has increased estimates of the amount of tax underpaid by large businesses to £24.8bn in 2016-17, up from £21.8bn in 2015-16. Ian Hyde, partner at the law firm, said: “HMRC’s and perhaps more importantly, individual officers’, priority seems at times to be to avoid being seen to be ‘doing deals’ with large corporates. This means HMRC is digging its heels in and not backing down, even when there is a sensible settlement to be reached.
15 Jan 18

SMEs paying higher rate of corporation tax than big businesses
SMEs are paying a higher effective rate of corporation tax than bigger businesses, according to research from Moore Stephens. The effective rate of corporation tax paid by SMEs was 21.7% in 2016, compared with 20.1% paid by businesses with turnover over £1bn. Mike Cooper, partner at Moore Stephen explained: “Recent tax rate reductions have clearly focused far more on encouraging larger businesses than SMEs.” In 2010 SMEs paid a headline corporation tax rate of 21% compared to the main rate of 28%, but large businesses have had their corporation tax rate cut by almost a third since then, resulting in an imbalance. Just a few years ago SMEs benefited from a corporation tax rate discount of one quarter on the full rates, which Moore Stephens has urged the government to consider reintroducing.
09 Jan 18