The Treasury Committee of the House of Commons issued a call for evidence on Tax After Coronavirus (TACs) shortly before the summer recess, with submission requested by 28 August 2020. Richard Murphy, on behalf of Tax Research LLP and the Tax After Coronavirus (TACs) project that it runs, has submitted evidence in response to that call.
That submission is here. Since the whole submission is 13,000 words it is not possible to summarise it all in one post here. As a result the plan is to share it, and elaborate ion the issues raised in a series of posts. It is, however, appropriate to record in this first instance some of the recommendations made:
1) Given their role in undermining the income tax base in particular, all allowances and reliefs offered should be systematically evaluated to determine: their cost; their economic effectiveness; the benefits arising from continuing to offer them; any impact of their withdrawal. Where a benefit cannot be established, a plan for the removal of tax reliefs should be considered.
2) Domestic spillovers could be reduced by introducing greater equality of the treatment of income from earned and unearned sources, including introducing additional income tax charges to compensate for the absence of social security charges on investment income.
3) Given its distortionary effects in generating considerable domestic and international spillovers, the UK should consider abolishing its domicile rule for all taxation purposes.
4) The UK’s minimum corporation tax rate should be moved closer to U.K.’s basic rate of income tax as the current discrepancy places the income tax base under strain, and could be raised further to reflect the benefits to those who use limited liability, as well as to fulfil its defensive social purpose.
5) To reduce the international spillovers it generates, the UK should consider reforming those elements of its corporate tax regime designed to artificially induce the relocation of profits, which generate significant spillover threats for other countries. This could include: raising the rate of corporation tax; and overhauling its lax controlled foreign company rules, its treasury company regime and its patent box arrangements.
6) Due to its generosity, the UK’s capital gains regime for companies involved in mergers and acquisition arrangements, potentially undermine the capital gains tax base and pose some threats to other countries tax bases, and should, therefore, be reviewed.
7) To prevent the potential undermining of the corporation tax base, the UK should require every UK registered company to file a corporation tax return annually.
8) To enable the relevant jurisdictions to collect tax owing, the UK should consider removing the exception from filing a corporation tax return provided to companies who claim to trade only outside the UK. This would also enable the UK to better comply with its obligations under automatic information exchange agreements (AIE).
9) Capital gains tax can pose threats to other tax bases that could be reduced if: the annual allowance for capital gains tax was reduced in value; and the exemption for the sale of domestic residences, whether owner-occupied or let, were reviewed.
10) To enable income arising from investment sources for taxation purposes to be better identified automatic information exchange should be introduced to the handling of the sale of assets, and applied to lawyers, estate agents, financial advisers, banks and others dealing in shares and securities.
11) To prevent administrative laxity posing spillover threats domestically and internationally the culture and objectives of the UK’s tax authority should be assessed in terms of the current focus on cost minimization; the ability to provide equivalent services to all taxpayers; perceived favourable arrangements to large companies; adequate stakeholders representation in management and decision making structures; potential for improved tax gap measurement; increased resources in funding, staffing and training.
12) To prevent tax administration undermining international agreements (AIE) and corporation tax bases, the UK Registrar of Companies should not be permitted to strike companies from the register when they fail to file documentation, but should instead be legally obliged to pursue that information from persons responsible for its delivery.
13) The UK should commit to securing all the information necessary to fulfil its obligations under international tax agreements and should also require that all crown dependencies and overseas territories follow similar steps to become tax transparent.
The report provides evidence to support these suggestions, and more besides. The hope is that MPs will give it the consideration it deserves.