There has been little let up in the discussion of international tax avoidance over the last year. Whilst the Chancellor would undoubtedly like to tackle head on those tech companies which pay minimal corporation tax in the UK, it may be difficult for the UK to go it alone in advance of international rules being finalised (most notably the OECD programme to prevent “Base Erosion and Profit Shifting” or “BEPS Project”).
We do not think that the Pre-Budget Report will include any wholesale changes to the way in which multinational companies are taxed in advance of the BEPS Project being finalised. However, the Chancellor may, want to introduce further rules attacking the use of hybrid instruments and hybrid entities in advance of the final OECD report, given that this is a topic on which substantial agreement on the need for reform has already been reached. The political pressure to include new anti-avoidance rules remains strong given that the UK has itself not been above criticism for introducing tax rules which encourage international tax avoidance, as the recent row between the UK and German Goverments about UK Patent Box have demonstrated.
Any new rules will come at a time of great debate over tax avoidance and how to tackle it. Novel ways of attacking tax deals concluded between companies and national governments have included arguing that they constitute illegal State Aid.
The impact of any new anti-avoidance rules will be strengthened by the recent signing by fifty one countries of a new agreement to allow the automatic sharing of tax information between countries, which is the first of its kind.