I haven't really known what to make of the Tories' plans on tax simplification.

Tax complexity is one of those tricky topics that I think nobody really knows how to solve, and I suspect there are good reasons for Richard Murphy-like cynicism about the whole project.

The plans are two-fold: firstly, an Office of Tax Simplification to monitor tax policies.

And secondly, a joint parliamentary committee on tax matters.

Of the two, I like the second far more than the first. Members of the House of Commons are, to put it mildly, very ill-briefed on tax frequently. To ask them to scrutinise the finance bill is hopeless, and a joint committee, comprising the much more experienced members of the House of Lords as well as those from the commons, would add to the intelligence of the debate.

The Office of Tax Simplification is less attractive. More bureaucrats do not create less bureaucracy; surely a principle the Tory party exists to promote.

Like a Corporate Social Responsibility department within a multi-national company, it will only exist to be paid lip-service to. Real simplicity, like real CSR, comes from the top; in the case of tax, from clear thinking and a desire and political will to embrace radical solutions.

Take one example. The debate over multi-nationals leaving the country has been hampered by complex arguments over whether we should lower the corporate tax rate, or just hammer the big companies with fiercely complicated rules about overseas subsidiaries. I doubt either would work.

In fact, the most elegant solution, rarely discussed, came from Deloitte. It suggested a low tax rate for mobile income, recognising that some things can be taxed and some can't.

The Tories should aim for similar realism on all aspects of tax; through doing so, they may get somewhere towards a simpler and better tax system.

July 16, 2008 | Permalink | Comments (52)

Just a short post to say - if you're interested in the saga of former HMRC chairman Paul Gray's payoff, Sue Cameron in the FT has some good gossip.

July 16, 2008 | Permalink | Comments (0)

As someone who has been writing about the Vodafone CFC case over the last two years like an overexcited puppy, I can hardly turn around now and say that the case isn't significant at all. But in one sense, it arguably is.

Esteemed experts from accountancy firms and from law firms are all lining up to say that the High Court's rejection of the CFC rules is terrible news for the government, and removes a key set of anti-avoidance principles.

But will it have any impact?

Few companies have big CFC liabilities like Vodafone, because the rules are an obstacle rather than anything else: companies plan around them. So there aren't thought to be huge numbers of cases awaiting resolution.

And secondly, noone is going to say to themselves now: 'Why don't we ignore the government's controlled foreign companies rules.'

Whatever happens, the government will introduce new rules that will have a similar effect, so I doubt anyone's behaviour will ultimately change going forward. (it will actually prove more of a problem for taxpayers, since they'll have to master the new rules rather than the old ones.)

What's more, I suspect there is some doubt the judgment will stand. Taxpayers often win in the High Court, with HMRC having a better record elsewhere. With £2bn at stake, there's no danger of anyone backing down if they don't have to.

The really intriguing part of the case is not, if you ask me, what impact this has for other companies, but on what Vodafone was up to.

The company has declined to elaborate on the details of its Luxembourg subsidiary, which bought the shares of Mannesmann, and in which those shares attract no capital gains charge.

Are all relevant management decisions made in Luxembourg? Are there lots of people there? Vodafone says it meets the tests, but hasn't pleaded its case in court in full.

July 8, 2008 | Permalink | Comments (0)