Tuesday, November 3, 2009

Bolting Stable Doors with HMRC

An E-mail update received this morning starts:

On 14 October 2009 the Financial Secretary to the Treasury proposed significant changes to the current rules governing how group companies are taxed…

One of the problems with making the British tax codes more complicated is that the government has to keep changing the rules just to stay in place. This is because the ‘law of unintended consequences’ means clever lawyers and accountants do their duty to their clients by keeping payments to the legal limit by finding unusual routes through the thickets of legislation planted by government. HMRC in its turn will plant more legislation order to block the way, and so the cycle moves on.

The real victim is the ordinary, decent person who only wants to pay what is right but is faced with a web of laws designed to entangle trained professionals.

“Keep it simple, stupid” is the best policy. Clear out the credits, exceptions and special pleading and replace them with simple, flatter taxes.

Taxes levied at lower rates are more likely to be paid. First, it becomes more cost-effective to comply and, second, there isn’t the resentment that the government is ‘ripping us off’ that fuels many a potential tax avoider.

As for the proposed changes, read and weep:

Potential Impact. As such, this new exception is of a much narrower scope and it is intended that only buy backs that are “undertaken as part of genuine corporate rescues will benefit from the buy back profits not being subject to tax”. Certain securitisation structures for one should be reviewed in light of this. That said, it may still be possible, subject to any new legislation, for tax neutrality in relation to a discounted debt buy backs to be achieved via alternative routes; namely in the form of waivers implemented under schemes of arrangement or a capitalization share issue.

For the full joy of this tax update read http://www.paulhastings.com/assets/publications/1433.pdf?wt.mc_ID=1433.pdf

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