A Historical Perspective on UK Corporation Tax. Development Charts. Peter Harris University of Cambridge. Saïd Business School, Oxford June 26, 2015

Transcription

1 A Historical Perspective on UK Corporation Tax Development Charts Peter Harris University of Cambridge Saïd Business School, Oxford June 26, 2015 Note: The categories used in these charts broadly follow the structured used in Harris (2013), Corporate Tax Law (CUP) 1

2 Corporate Income When Derived: Companies and Tax Base 1960s 1970s 1980s 1990s Identifying Companies Def of company including investment Def of close company General Structure Current year basis Income tax schedules plus chargeable gains Losses sideways, back one year, carry forward quarantined Quarantine capital losses Only part capital gains included in profits (due to ACT) Stock relief Indexation relief for capital gains Deep discount securities Rebasing of cost base to 1982 More on deep discount securities Tax Base Three year carry back of losses Exchange gains and losses marked to market Interest rate and currency contracts Loan relationships Loan relationships and leasing Carry back losses one year Capital allowances and finance leases New Schedule A Use accounts as basis 2000s LLPs are not Extra R&D relief for SMEs More on R&D relief More on loan relationships, derivatives code, foreign exchange moved to them Intangible assets regime More on loan relationships More on intangible assets Amendments for IFRS Sale and leaseback More on IFRS More on loan relationships and derivatives New regime for leasing More on loan relationships, derivatives, finance leases More on R&D, leasing, loan relationships, derivatives and financial arrangements More on loan relationships, derivatives and leasing 2010s Leasing again Loan relationships, derivatives and change in accounting standards Patent box, more on R&D Loan relationships and derivatives again Groups Subvention payments from income tax Hive down rules for losses and capital allowances Capital gains transfer and replacement assets, definition of group Group and consortium relief replaces subvention Anti-temporary grouping rules for group relief, equity holder Downwards consortium relief Consortium members up to 20 (from 5) Mixing of group and consortium relief Reworking of 75% ownership test for group relief Capital gains group requires effective 51% subsidiary Amend def of group for group relief Interest between associated charged on accrual Replacement asset relief extended to groups Groups extended to held via EU Transfer of capital gains within group without transfer of asset Domestic application of transfer pricing Broaden transfer pricing EU extension of group relief Definition of interests for group relief Transfer capital gains and losses within group Loan relationships, derivatives and group mismatches More on loan relationships, derivatives and group mismatches Refreshing of corporate losses 2

3 Corporate Income When Derived: Tax Treatment 1960s 40% (income tax & surtax 91.25%, CGT 30%) 42.5% (income tax & surtax 91.25%, CGT 30%) 45% (income tax & surtax 91.25%, CGT 30%) Rates 1970s 42.5% (income tax & surtax 91.25%, CGT 30%) 40% (income tax & surtax 88.75%, CGT 30%) 52%, 42% (small), 30% (CG) (income tax 85%, CGT 30%) 1980s 52%, 40% (small), 30% (CG) (income tax 75%, CGT 30%) 50%, 30% (small), 30% (CG) (income tax 75%, CGT 30%) 45%, 30% (small), 30% (CG) (income tax 60%, CGT 30%) 40%, 30% (small), 30% (CG) (income tax 60%, CGT 30%) 35%, 29% (small), 30% (CG) (income tax 60, CGT 30%) 35%, 27% (small), 30% (CG) (income tax 60%, CGT 30%) Separate rate for corporate chargeable gains abolished 35%, 25% (small) (income tax 40%, separate CGT rate abolished) Close investment holding company rules 1990s 34%, 25% (small) (income tax 40%) 33%, 25% (small) (income tax 40%) 33%, 24% (small) (income tax 40%) 33%, 21% (small) (income tax 40%) Instalment system and self-assessment Starting rate of 10% 2000s 30%, 20% (small), 10% (starting) (income tax 40%) 30%, 19% (small), 10% (starting) (income tax 40%) 30%, 19% (small), 0% (starting) (income tax 40%) 30%, 19% (small) (income tax 40%) 28%, 21% (small) (income tax 40%) 27%, 21% (small) (income tax 50%) 2010s 24%, 20% (small) (income tax 50%) 21%, 20% (small) (income tax 45%) 20% (income tax 45%) Abolish small company and close investment holding company provisions Attribution Excessive retention of close Rewritten close company attribution Repeal close company apportionment IR 35 rules (employment only) IR 35 extended to office holders 3

4 Corporate Income When Distributed Distributions Tax Treatment General / Constructive Hybrids General / Individuals Companies 1960s Capital dividends Distribution out of assets Redeemable shares and securities Transfer pricing rule Close company benefits; interest to director; annuities, rents, royalties etc. more than commercial return; cross benefits; non-deductible directors fees, loans to participators Group exception to transfer pricing rule Remove limit on deduction of directors fees 1970s Annuities, rents, royalties etc. of close company removed as distribution tax on loans to participators tied to ACT rate Benefits by 90% subsidiary to parent shareholders Convertible notes Results dependent Securities issues to non-resident parents Stapled securities Excessive interest becomes general Schedule F/classical DWT Deduction of interest expense removed unless interest in close company DWT morphed into ACT set against CT on income only, carry back 2 years Franked investment income Exception from DWT for 51% groups and consortium Consortium include 90% holding company FII continues under ACT 1980s 1990s 2000s 2010s Loans to participators of close and loan relationships Group exception to transfer pricing abolished Loans to participators of close again Intercorporate interest not recharacterised if recipient chargeable Equity notes Securities to non-resident parents only non-arm s length extent Abolish securities to non-resident parents (now transfer pricing) Shares as debt More on shares as debt Managed service Shares as debt again Release of connected company debts ACT carry back increased to 6 years ACT set against CT on chargeable gains 20% distribution rate (ACT effective 22.5%) Pension fund etc. denied refund of dividend credit Reduction of tax credit to 1/9 and reduced income tax rate for distributions ACT abolished Non-corporate distribution rate (equalisation tax) ACT abolished, intercorporate dividends exempt 4

5 1960s 1970s 1980s Incorporation Exist charge Dual resident 1990s More on dual resident Dual residence again 2000s International Residence Foreign Income Foreign Investors Allocation of Expenses 2010s Modification to exit charge (EU) Attribution of capital gains of non-resident Unilateral underlying FTC on 10% holding FTC after set off of ACT FTC set off before ACT CFC and offshore fund rules Foreign income dividend scheme Underlying FTC and mixer End foreign income dividend scheme More on underlying FTC CFC holding increased to 25% and threshold to 50,000 Underlying FTC again and mixer cap CFC rules strengthened Amendment to capital gain attribution More on underlying FTC Branch replaced with PE CFC rules and EU Dividend tax credit for foreign dividends CFCs and trusts Exemption of foreign dividends for corporates (EU) Consequential amendments to CFC More on dividend tax credit for foreign dividends Interim changes to CFC Exemption of foreign PE New CFC regime Amendment to capital gains attribution (EU) Diverted profits tax DWT DWT becomes ACT but credit for can be available to nonresidents Credit reduced ACT abolished Interest and Royalties Directive Diverted Profits Tax Worldwide debt cap More on worldwide debt cap 5

6 Dealing in Share Interests 1960s Pooling Share Identification 1970s Bed and breakfast 1980s Pooling replaced with FIFO Pooling back for Pooling back generally Creation/Incorporation Transfer Termination Change of Corporate Control / Group Incorporation rule (general application) Incorporation relief denied to corporations Venture capital Indexation relief for capital gains Loss on unquoted trading company shares set against income Unification of individual income tax and capital gains tax rates Liquidation as capital Capital distributions Share buy-backs Degrouping charge for capital gains Change of ownership (loss ) Deny carry forward of surplus ACT Rework rules on carry forward of surplus ACT 1990s Pooling abolished for individuals More on bed and breakfast 2000s Pooling for individuals back Incorporation relief elective Taper relief/indexation frozen for individuals Substantial shareholder exemption Taper relief loosened Flat rate capital gains tax, taper relief abolished Buy back treated as foreign income dividend End foreign income dividend scheme Restrictions on pre-entry losses when join group Loss restrictions extended to investment Restrictions on unrealised pre-entry losses when join group Loan relationship deficits change of ownership and degrouping Capital losses change of ownership Change of ownership of lessor 2010s High capital gains tax rate Disincorporation relief Capital allowance buying More on degrouping charge Relaxing of restriction on pre-group capital losses More capital allowance buying 6

7 Variation of Share Interests, Fungibility of Dividends and Capital, General Anti-avoidance Variation of Share Interests Dividend/Capital Plays General Antiavoidance One Company Multiple Companies 1960s Bonus shares and repayments of capital Reorganisation of share capital Rights issues Stock dividends are distributions 1970s Stock dividends not a distribution Stock dividends taxable (no ACT) Merger by share exchange Scheme of reconstruction Merger relief reduced to 25%, anti-abuse and clearance Anti-abuse for reconstructions Transactions in securities from income tax Manufactured dividends from income tax Value shifting for chargeable gains Start of depreciatory transaction rules More transactions in securities Depreciatory transactions in a group More on depreciatory transactions (now 10%) More on value shifting More on value shifting 1980s Demerger relief Manufactured dividends amended Stock lending Extend value shifting to corporate groups 1990s Convertible securities Stock dividends not a reorganisation Merger relief further loosened Manufactured payments extended to repos More on repos and stock lending Rewrite stock lending, manufactured payments and repos 2000s Rewritten reconstruction rules More on manufactured payments More on manufactured payments More on repos and stock lending More on stock lending, repos, structured finance New regime for repos Manufactured payments again More on stock lending 2010s B share schemes Rewrite transactions in securities Simplification of value shifting Disclosure of tax avoidance Disclosure again GAAR High risk promoters More on disclosure regime 7