CIOT supports plans to align tax rules for multinational profits
However, the institute called for care to be taken to ensure any rewritten rules continue to meet their objectives
The Chartered Institute of Taxation (CIOT) supports proposals to align UK rules around the taxation of the profits of multinational corporations with those agreed internationally.
In a response to an HMRC consultation on transfer pricing, permanent establishment and the UK’s existing diverted profits tax, the CIOT said it supported the overarching recommendations, which would “simplify tax rules and provide greater certainty to businesses.
However, the institute called for care to be taken to ensure any rewritten rules continue to meet their objectives.
In addition, the institute suggested that some of the rules be improved, such as how they apply to joint ventures, which is where two or more companies combine resources and expertise for certain projects.
Sacha Dalton, technical officer for international tax at CIOT, said: “We broadly welcome these changes, which would more closely align the UK’s domestic legislation with international standards to ensure consistency.
“Differences from the agreed international guidelines complicate compliance for taxpayers and reduce the benefit of having reached a global consensus as to what the rules should be. Updating these rules in the UK would provide greater certainty, assist in the settlement of mutual agreement procedures and enhance the attractiveness of the UK for businesses.
She added: “However, the areas under consideration are complicated and care will be required to ensure the objectives are met.”
The CIOT also supports aligning charges under the Diverted Profits Tax more closely with corporation tax, which would simplify the process and bring it within the scope of double tax treaties.
However the Institute has raised questions about plans to align the UK’s definition of permanent establishment with Article five in the 2017 OECD Model, following changes to the article in 2017.
Dalton explained: “While this alignment would be a simplification for both taxpayers and tax administrators, businesses have expressed concerns about the potential impact of the changes, which would reduce certainty and, potentially, lead to a proliferation of permanent establishments.
“These concerns remain valid and insufficient time has passed since the changes to Article five to conclude that they are not giving rise to these problems.”
