corporate finance 35


Is tax planning a moral issue? Transaction tax and the anti-avoidance debate


Suddenly the news focus is on companies and entrepreneurs and whether they are paying a 'fair' amount of tax. There are many contexts for this, one being the tax arising on M&A transactions. Is it any longer possible to be involved in M&A transactions where tax planning is a significant part of the deal without considering whether there is a moral angle involved, as some opinion would suggest? Andrew Peddie, partner, Pitmans LLP writes


The press is currently in the business of expressing moral outrage in many different directions, often against other parts of the press itself, but whether large corporates are paying the tax they ought to be in the UK or elsewhere is certainly a major preoccupation just now. The long period of economic difficulty which this country and many others have experienced and will continue to face is in part the cause of this. Individuals are in many cases facing real hardship both in terms of their income and reducing government services, and large companies or wealthy individuals and whether they are paying their taxes are an understandable focus as a result. One person’s 'politics of envy' is another’s debate over fairness.


The problem is that this issue cannot properly be discussed without looking at it in the widest possible perspective. Hardly any of us would really believe that if companies and individuals are taxed at penal rates with a view to re-distribution of their wealth, or to allow increasing government spending, it would have a positive medium to long-term outcome. The reality is that those businesses and wealthy individuals would cease to be so successful (and therefore pay less tax) or that they would go elsewhere, increasingly easy to do in the globalised economy. It is also not realistic to think that an international approach to the problem (the route down which much of the logic of the debate goes, with the idea that large companies should pay a fair rate of tax based on turnover in each country) is politically achievable. Just look at the debate over the question of the relative powers of the EU and national member states to see how difficult that would be. National governments want the freedom to adapt their own tax regime to achieve competitive advantage.


The UK Government is dealing with this debate in part by the proposed introduction of a 'general anti-abuse rule' or 'Gaar' into UK tax legislation, causing some alarm among companies and their professional advisers.


This is not the place for a detailed discussion of the reasons for that, but safe to say that the breadth of the proposals, and the mechanisms for appealing whether what has been done really falls within the Gaar, look of concern. It would not be right if the Government’s tax raising arm is the ultimate decision-maker on whether tax has been avoided in an “abusive” way, when it is the beneficiary of that decision. This is a role for Parliament and the courts, but some of the commentators are suggesting that we are in danger of HMRC’s powers increasing in this direction.


In a transaction context, there are a number of concerns for the legal, tax or accounting practitioner, and the corporate or individual client, in all this. It would be very odd if individuals did not feel able to take advantage of the low rates of capital gains tax resulting from fitting within the 'entrepreneurs’ relief' regime, for example, or the EIS or Seed EIS reliefs available in return for investing in early stage businesses. Yet doing so could result in significantly reduced CGT and income tax rates. The fact that the trend of government policy might lean towards annual or other limits to the benefits an individual could take from reliefs such as this could be very significant.


Equally, how concerned should a corporate acquirer be if the seller individuals in an M&A transaction have established complex offshore tax structures to shelter their proceeds of sale? In the current environment, the reputational issues may need to be considered, even if it is possible to argue that it is not a matter for the purchaser company. It may even be that some


companies feel uncomfortable with it from a moral or 'good corporate citizen' viewpoint. It may also raise the question whether such activity crosses the line between tax avoidance and evasion, the latter being clearly wrong, and therefore potentially within proceeds of crime legislation. That would absolutely make it a concern for the buyer.


This debate needs to develop before there is any clear view, but business needs to get involved in that discussion before it begins to crystallise around an over-simplified analysis of the situation.


Details: Andrew Peddie apeddie@pitmans.com 0118-9570321


Win a Christmas treat! Tell us what you think about funding conditions for your business


Visit www.pitmans.com to enter our survey and you could win a 7kg Christmas turkey.


www.pitmans.com THE BUSINESS MAGAZINE – THAMES VALLEY – DECEMBER 12/JANUARY 13 www.businessmag.co.uk


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60