By Daniel Hunter

The public might be losing confidence in companies paying their taxes, but fixing that can’t come at the expense of manufacturers losing confidence in the UK as a place to invest and grow.

In response to the debate on corporate tax avoidance, at home and in Europe, EEF, the manufacturers’ organisation is calling on all sides of the debate to act to address mounting uncertainty surrounding the government’s possible response, and take steps to limit any consequences on much needed business investment growth.

“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," EEF Chief Economist Ms Lee Hopley said.

“But in the contest to out companies for not paying their fair share we are losing sight of the key 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.”

The manufacturing sector is trade and investment-intensive and companies need every encouragement to invest here in the UK, particularly as nearly half the investment in UK manufacturing comes from foreign-owned companies.

EEF sees five problems with the current debate about addressing corporate tax avoidance:

1. The term ‘tax avoidance’ is being used to describe lots of different behaviours;
2. Debate fails to acknowledge that parliament decides what is a ‘fair amount of tax’ through law;
3. Much of the issue centres around international rules, which require international agreement to reform;
4. Proposals with serious unintended consequences are being put forward with little challenge;
5. The debate is undermining efforts to promote the UK as a place to invest and do business.

EEF’s analysis notes that currently counter-productive proposals are being aired with little challenge in the clamour from public figures to be seen to be ‘doing something’.

For example country-by-country reporting might sound attractive but it would add complex and costly administrative burdens to companies while simply deluging the public with more incomprehensible data. Revenue authorities issuing kite marks defining companies who pay their ‘fair share’ begs the question who decides what is fair?

Looking at how government needs to respond, Ms Hopley continued: “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 is therefore setting two challenges for the government. Firstly, the substantive response to legitimate public concern about corporate tax avoidance must not undermine the objectives of the government’s broader reform programme to deliver the most competitive tax system in the G20.

“Secondly, the government needs to actively enter the public debate on corporate tax avoidance and make it much clearer.”

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.

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