By Daniel Hunter
In a speech this morning (Thursday) at a CBI/Policy Exchange business taxation debate, John Cridland, Confederation of British Industry (CBI) Director-General, said that UK businesses pay around a quarter, £163 billion, of the country’s total tax revenue, and that a competitive tax system is essential to the economy and prosperity.
Launching a major new CBI report, Tax and British Business: Making the Case, Mr Cridland said that “UK businesses need to be competitive on the world stage and are perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes.”
He made clear that an important distinction had to be drawn between transparent low-tax jurisdictions and ‘tax havens’ that hide behind secrecy.
Mr Cridland said that responsible business did not tolerate tax evasion, abusive tax arrangements with no commercial purpose, or ‘black-box’ schemes, and welcomed proposals for a General Anti-Abuse Rule (GAAR), which should help weed out abuse.
On business paying its fair share, Mr Cridland said: “Activist groups have raised the perfectively legitimate question of whether business pays its ‘fair share’ of tax. It’s a good question, and it deserves a good answer. But it is not an easy answer to give because what people see as ‘fair’ lies in the eye of the beholder.
“I am confident that the large majority of business pays the right amount of tax, and that for the small minority which does not, times are getting tougher, not easier — and rightly so.”
On what tax businesses pay and collect, he said: “In the latest financial year for which we have full figures, businesses operating in the UK paid around £163bn in taxes, or around a quarter of the total revenue.
“That is made up of: employers’ National Insurance contributions; corporation tax; business rates; a share of fuel duties; and other taxes, including environmental ones.
“We collect taxes too, such as income tax though PAYE and VAT on sales, at a significant administrative cost to business.”
On business being absent from the tax debate, he said: “The reason I wanted to speak to you today is that for too long, business has been slow — or perhaps even reluctant — to enter the public debate on tax policy. That needs to change. We want to defend robustly our record — and advocate pro-growth tax policies which are in everybody’s interests.”
On the importance of international tax competitiveness, he said: “The coalition government has committed to creating the most competitive tax system in the G20. That might not always win it popularity prizes, but it could do more to secure lasting prosperity than any other lever it’s able to pull.
“Progress is being made on tax rates, simplification and improvements to the policy-making process. The chancellor’s decision to accelerate the reductions in corporation tax in the Budget sends a powerful signal to companies to invest, do business and create jobs in the UK. In an increasingly competitive world, such signals are essential.
“By 2014, the UK’s headline rate of corporation tax will be the fourth-lowest in the G20. That’s good, although - and here I’ll use the verb we’ll hear plenty of during this summer’s Olympics - we still won’t ‘medal.’
“But in terms of effective tax rates, those which companies actually pay, there’s still great scope for improvement. When viewed through an effective tax rate lens, we’ll still be in the middle of the G20 pack by 2014.
“The CBI’s long-term ambition for the headline corporation tax rate is 18 per cent. This isn’t special pleading. It’s a level-headed analysis of what the economic multiplier effect would be — in other words, the impact taxes actually have on the ground and on people’s lives.
“Pound for pound, the economic impact of reducing corporation tax far exceeds increasing personal allowances, cutting VAT or raising government spending. It stimulates investment, which in turn leads to more long-term growth.”
On businesses’ right to use low-tax jurisdictions and the distinction between these countries and so-called tax havens, he said: “UK businesses need to be competitive on the world stage and are perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes.
“We need to be clear what we mean by so-called tax havens. I do not consider a low-tax regime with transparency a tax haven. But I do believe that there must be transparency between tax regimes in order to avoid inappropriate arrangements hiding behind tax secrecy.
“Many countries have fully transparent tax systems and also have low headline tax rates: the Netherlands and Ireland are two prime examples. These jurisdictions, just like our own, are competing for mobile capital and for intellectual property.”
On tax management versus tax abuse, he said: “Businesses making use of the tax reliefs the government makes available to them is called tax management. It’s an important function of the business world, along with things such as human resources and financial control.
“It’s a dangerous — if sometimes convenient — myth some people peddle that all tax management is abusive, and amounts to evasion. It doesn’t.
“Tax evasion — that is, not declaring taxable income due — is illegal, immoral and damages the integrity of honest businesses the world over.”
On a General Anti-Abuse rule, he said: “We’ve now seen proposals for a General Anti-Abuse Rule, or GAAR. Some have claimed this has no teeth. On the contrary, the proposals look both proportionate and effective, focused on highly abusive, artificial avoidance schemes which serve no commercial purpose. These schemes should be weeded out and the GAAR will play an important role in doing so.
“For these reasons the CBI is now supportive in principle of the GAAR — a sign I hope you would agree of business taking this issue seriously.”
On ‘black-box’ arrangements, he said: "Black-box’ arrangements are where transactions are designed for no commercial purpose at all but just, for example, to separate a tax benefit from economic income. These are completely artificial, never acceptable, and tarnish honest business activity.”
On transfer pricing, he said: “The transfer pricing of intangibles like intellectual property can be really challenging.
“Often the biggest problem is not under-taxation at all, but the prospect of being taxed twice.
“The law must evolve constantly to ensure it can keep up with developments at the leading edge of the real economy and provide clarity in cases like these. This requires international co-operation to create a system which gives certainty to business and is as transparent as possible.”
On claims that HMRC is a “soft touch” and of “sweetheart deals”, he said: “I spend my working day talking to companies across the country. Frankly I don’t recognise the notion that Her Majesty’s Revenue & Customs is a soft touch. Far from it: tough, but fair.
“Reports about so-called ‘sweetheart deals’ between business and HMRC are wide of the mark. The ‘tax gap’ between what should be collected and what actually is has been shrinking in recent years, and only £1.2bn of the total £35bn is attributable to corporation tax paid by the largest companies.”
On business reputation and tax, he said: “Businesses are increasingly aware of the reputational risks associated with abusive arrangements and ‘black-box’ schemes.
“Business pays the tax it’s required to — and we’re talking about a huge amount of money, in both cash terms and as a proportion of total government revenue.”
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