Confidence in UK must eclipse confidence in corporate tax: EEF

Posted on 28 May 2013

Manufacturers’ group EEF is concerned that the row over corporate tax avoidance may deter business investment in the UK.

EEF is calling on all sides of the debate to act to address uncertainty surrounding the government’s possible response to tax avoidance.

It said it wants all parties to take action to limit the consequences on much needed business investment growth. Nearly half the investment in UK manufacturing comes from foreign-owned companies and the trade body is concerned the regime should be as attractive as possible to encourage investment.

The trade body warned of reactive proposals that will have profound “unintended consequences.”

“It’s understandable that the public are concerned about corporate tax avoidance because there are areas that do need reform, particularly in the area of international taxation,” said EEF chief economist, Lee Hopley.

Ms Hopley said in the clamour to “out” companies for not paying their fair share of tax, the public is losing sight of the more important issue – creating the right environment to get industry investing and growing in the UK. “Attempts to restore confidence in the tax system could come at the cost of damaging confidence in the UK,” she added.

EEF sees several problems with the current debate about addressing corporate tax avoidance.

The term ‘tax avoidance’ is being used to describe lots of different behaviours, suggesting that some “tax efficient behaviours” are less onerous.

It says the debate currently fails to acknowledge that parliament decides what is a “fair amount of tax” through law.

It also points out that the main issues centre on international rules, which require international agreement to reform.

EEF points out that counter-productive proposals have received little challenge from public figures keen to be seen to be ‘doing something’.

Country-by-country reporting, for example, might sound attractive but it would add complex and costly administrative burdens to companies “while simply deluging the public with more incomprehensible data”.

Looking at how government needs to respond, Hopley said “A hasty response to tackle a specific set of behaviours could have negative impacts on a much wider group of companies that were never intended targets”.

EEF’s specific recommendations to the government are:

1. The areas of obvious abuse where there is a clear consensus on the need for action need to be spelt out by government so the public is clear what we are focused on
2. More actively manage the reform process by clearly setting out its timeframes and expected endpoint and setting out opportunities for consultation
3. Better application of current rules should be considered as an option alongside or instead of changing any rules
4. Avoid unilateral or knee-jerk responses to issues with a complex international character that require considered, multilateral responses
5. Explicitly consider an ex-ante assessment of benefits before implementing any new disclosure requirements that will add to administration costs and complexity
6. Any proposed changes need a thorough assessment of the impact on investment and growth for both the economy and individual sectors, including whether the changes will support much needed rebalancing in the economy towards more investment and net exports
7. Aside from their substantive impact, any proposed changes should be assessed for their potential to deliver greater confidence from the public in the corporate tax system.