Time to flatten tax competition? By Dan Martin

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Cadbury Schweppes' recent victory in the European Court of Justice against the UK's controlled foreign company rules has put tax avoidance firmly at the top of the financial news headlines again, Dan Martin, AccountingWEB business editor, asks members whether it's time to introduce a flat rate corporation tax across Europe.

All companies want to save money. No businesses likes paying taxes and most company owners are likely to jump at any chance which allows them to make profits while legally avoiding contributing to the government coffers at the same time.

It goes without saying that tax avoidance isn't HMRC's cup of tea and its bite has got increasingly sharper ov...

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22nd Sep 2006 14:21

hammer blow or damp squib?
Does the Cadbury judgement only have an impact on low tax rates in fellow Member States? Presumably it is not binding on non Member States which have low tax rates (ie the majority of the so called tax havens).

If this is the case, then it would hardly appear to be a hammer blow against the CFC rules - merely a welcome examination of them in order to iron out a few kinks.

I think it is only fair that if you have a bona fide reason for being there, then you shouldnt face the CFC rules, and that the current motive tests are more than a little punitive. It would be nice to think that there might be a re-examination of the motive test and some revised guidance in the form of a statement of practice to look forward to.

Then again I might have totally the wrong end of the stick!!

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25th Sep 2006 09:21

It is suggested above that...
...a flat tax on income is unfair because "those with less assets pay a greater percentage of their net worth in tax".

Of course they do! That is because their Return on Capital Employed (ROCE)is higher. They have risked less assets in their businesses so, if they make the same profit as those who invest heavily in fixed assets, they should expect to pay a greater proportion of their net investment in tax.

There is even an arguable case that,to be fair, taxes on income should vary directly or be graduated with ROCE. That could result in businesses with lower net assets actually paying higher tax than businesses with greater net assets, even if profits were equal(because their ROCE would be higher).

Arguably a reasonably result because the tax take then reflects the risk in investment in the business (greater risk, lower tax; lower risk, higher tax).

But it is the complete opposite of what is suggested in the article above!

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