Corporation Tax "no longer fit for purpose"

December 03, 2013 11:49 AM

Mark Field, MP for the Cities of London and Westminster, has written a very good article for the Telegraph explaining why Britain needs major reform of our corporate tax system:

"The move towards lower taxes and the crackdown on so-called aggressive avoidance need not be mutually exclusive. In fact, they can easily be made complementary. Corporation tax is an imperfect levy that adds significant complexity to the system since it triggers endless disputes over what counts as profit. Armies of lawyers and accountants seek to bend definitions to lower tax liabilities. Loopholes are found and exploited. Governments end up introducing innumerable reliefs to aid particular sectors. And so the tax manual expands."

 

The Government says that it has made progress on both simplifying the corporate tax system and reducing headline rates. There is some truth to this, which the recent KPMG survey showing a marked rise since 2007 in the number of respondents citing the UK as one of the top three competitive tax systems among similar Western countries demonstrates. As the report states,


"simplicity and stability were ranked as more important than a low effective tax rate"

 

That's why what we need isn't endless tinkering with a fundamentally flawed system of tax designed for the last century but comprehensive reform that's built to last. This is particularly important as north America, Japan and the EU are joined by leaner, sharper emerging economies as the jurisdictions with which we must  compete to win investment and jobs in the future. Importantly, Mr Field has come to the conclusion that an increasing number of commentators share:

 


"in today’s globalised economy corporation tax is no longer fit for purpose."

 

He's right.

That's why our 2020 Tax Commission recommended scrapping Corporation Tax entirely and replacing it with a much simpler Single Income Tax on distributed earnings. Our report How to fix corporate taxes explains how the Government could do this and the post about our recent tax reform breakfast briefing features videos of speakers from the Institute for Fiscal Studies and the Institute of Directors discussing the issues.

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