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Concerns grow over tax deductibility of interest expense proposals

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In response to the recently closed consultation on the proposed changes to the tax deductibility of interest expenses, the CIOT said it was unconvinced that the new rules, which will restrict the interest expenses that can be deducted when a company calculates its taxable profit, are necessary in the UK.

The CIOT said that concerns around the use of interest expense being used to shift profits to other countries by multinational companies are either relatively unimportant for the UK or have been addressed by other aspects of the BEPS Action Plan and existing UK tax rules. It calls for a delay beyond the earliest proposed implementation date of April 2017 to ensure that all issues and complexities are properly addressed and the new rules do not disadvantage UK businesses.

Glyn Fullelove, chairman of the CIOT’s international taxes sub-committee, said: ‘The UK is not a high tax country, so the risk of groups placing higher levels of third party debt in the UK is no longer the threat it was when the UK’s rate of corporation tax was close to or above 30%. This risk will be reduced further when the rules to counteract hybrids and other mismatches take effect. In addition, the UK has only relatively recently introduced the world-wide debt cap, which addresses the same issues, so it is questionable whether it is appropriate to now introduce new rules to cover the same ground in a different manner.’

Meanwhile, the CBI responded: ‘We believe that tax deductibility of interest expense is a valuable element of the UK’s tax regime, helping to support businesses to make productive investments, including delivering the £411bn infrastructure pipeline.

‘We believe that any new restrictions in the tax deductibility of corporate interest expense should be introduced in a way that maintains the UK’s reputation as a country that is open to business and investment to create jobs, drive sustainable growth and secure sustainable public finances. In order to achieve this, we believe that the fixed ratio should be set no lower than 30% and flexibility in loss/capacity relief should be paramount. We would also welcome a flexible group ratio rule and a reduction in some anti-avoidance provisions if this is achievable, whilst maintaining a fixed ratio of 30%. Sector specific rules will also be key.’

In a recent Tax Journal/Pinsent Masons survey, 96% of businesses said the current tax treatment of interest deduction was “very important” or “important” to UK tax competitiveness (see

Issue: 1293
Categories: News