The institute argues the proposal is “unclear, unfair and will lead to onerous demands on affected businesses”.
It comes as the Government wants large businesses to notify HMRC where they have adopted an uncertain tax treatment, such as cases where the business believes that HMRC may not agree with their interpretation of the legislation, case law, or guidance.
The proposal is that businesses must notify any uncertain tax treatments to HMRC separately from their tax return, as HMRC claims this will help to reduce tax which is not collected as a result of businesses adopting tax treatments that HMRC does not agree with.
However, the CIOT said that it is not clear how a requirement to notify will assist HMRC with closing this legal interpretation tax gap, even if a satisfactory objective definition of uncertain tax treatment is found.
The CIOT has now set out its concerns in a recent submission to HMRC, arguing that time should be taken to evaluate which issues contribute to the legal interpretation tax gap that are not currently disclosed to HMRC.
It argued the fundamental building block of the proposal is “inherently uncertain and unclear”, adding that the lack of coherency around how the proposal interacts with the existing tax system “amplifies” its flaws.
It added that the current requirement to notify uncertain tax treatments would place large businesses under an obligation with which they would be “unable to comply with any confidence or certainty, resulting in an unreasonable, increased compliance burden on compliant taxpayers and a greatly increased administrative burden for HMRC for little benefit to the Exchequer”.
John Cullinane, CIOT tax policy director, said: “As it stands, we are opposed to the introduction of this compliance obligation and encourage the Government to rethink.
“Given the many challenges businesses are facing because of COVID-19, now is not the time to add to compliance burdens unless the measure is better justified.”
He added: “This proposed compliance obligation is inherently unclear and unfair. Businesses would not be able to comply with it with any confidence or certainty that they have got it right: it is unreasonable to expect these taxpayers to form a judgement on what HMRC may or may not do.
“It is not encouraging for the cooperative relationships that HMRC is keen to foster with businesses if, even when a business embraces collaborative and cooperative compliance, the Government still imposes new rules which significantly increase the businesses’ compliance burden.”