SELECT COMMITTEE ON ECONOMIC AFFAIRS - Parliament

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ICAS—Written evidence Then there remains the need to identify the Scottish taxpayer base. How? There are no complete, tax-system-ready records of who is in Scotland at the moment (if that’s the tax base you decide). HMRC can select details according to postcode but only for those “live” on the system, and there are serious concerns over data accuracy. Reporting of address changes, immigration and emigration render this an ever moving target. The issue for companies was set out above – there is a less immediate linkage of taxable profits to postcodes, given businesses may have many offices or depots – so that exercise too is needed to decide which companies and what proportion of business profits would fall within a Scottish tax net. The compliance burdens and competitiveness impact were outlined in ICAS representations in summer 2011 26 and addressed at page 6 above. Any departure of all the Scottish taxpayers (once defined) from the UK tax regime would introduce the scope for potentially interesting negotiations with HMRC on handover matters, such as tax deferrals or exit charges from the UK tax system, as arise for those leaving UK tax residence. This may result in a requirement for the establishment of a separate tax administration for any devolved tax powers or jurisdiction, or some other mechanism to avoid “HMRC Scotland” arguing with “HMRC UK”; a situation commonly agreed to present quite a conflict of interest and accountability. The tax provisions would then have to be passed into legislation, possibly a lengthy process of drafting and review. There are around 80 Acts of <strong>Parliament</strong> at present relating to UK tax and national insurance contributions with provisions in effect, not to mention a huge quantity of secondary legislation and guidance. The massive volume of existing legislation is directly related to the number of things the tax system is trying to do; the number of taxes, types of taxpayers, rates, reliefs etc – complexity – plus the drafting style of the legislation. That people just don’t like paying tax mean that a plethora of anti-avoidance provisions abound, not always very efficiently or effectively. Whilst in theory a different approach to legislative drafting might be taken with the blank sheet of paper system, it would be a drafting approach not yet developed. At present it takes a UK Government at least a year, probably nearer two, to shape, draft and enact one Finance Act, so getting to grips with a realistic timescale for any tax devolution is essential, even once the Scottish <strong>Parliament</strong>ary processes and procedures have been decided. To design and implement an independent tax system in Scotland from scratch may realistically take at least a decade if not two, shorter if a more limited devolution of powers is involved. Transitional provisions for taxpayers to move from the UK to any new system would also need to be considered, with decisions on changeover dates and records, and no doubt lots of forms to be filled in unless smart thinking is applied. Adopting the conclusions of the Mirrlees 27 report might shorten this process, but only perhaps if it received wide support. It may be that as a matter of practical reality the decision is made to 26ICAS response to “Rebalancing the Northern Ireland economy” 1 July 2011, available at http://icas.org.uk/home/technicaland-research/technical-information-and-guidance/tax/tax-submissions/ 27 Available from the Institute of Fiscal Studies website at http://www.ifs.org.uk/mirrleesreview/design/ch20.pdf 134
ICAS—Written evidence adopt the existing UK tax system with the potential for devolved changes over time, but that will defer, rather than avoid, this debate. Good and clearly established relationships with overseas tax jurisdictions are key to business and economic competitiveness, through the operation of the Double Tax Treaty network as well as cooperation agreements. It is likely these would need to be established and maintained for a devolved tax system as well. Changes to tax systems do not necessarily cause the principles in Double Tax Treaties to fail, but what is the position of any change in the tax authority at the same time? Would any devolved or independent negotiating position be seen as weaker, being from a smaller and newer tax authority? A clear position on how any tax system changes would impact on business competitiveness in this area is an early requirement. This final question is the one where practicalities and processes loom largest. Given the competitiveness agenda of most countries in economically challenging times, and the need for many for certainty in a world where uncertainty may be seen as risk, is it important that a process and timetable for this debate, or the destinations, are set out sooner rather than later? Or is time better spent in design and on principles? ICAS members welcomed the sentiments behind the UK Coalition Government’s Corporate Tax Roadmap in 2010, and would welcome continuation of those principles of a clear direction of travel. As stated above, this paper is about starting the debate on tax system design options in the light of the devolution debate. Much more will no doubt be written in due course on the practicalities. But whichever tax future is chosen, there is likely to be agreement that it would be helpful to optimise the benefits of a chosen system and minimise the costs and adverse consequences of change - we come back again to an area where ICAS members contributions to the debate may be hugely valuable. The ICAS debate A basic tenet for this paper is that ICAS members have a contribution to make to the debate on Scotland’s future, its meaning and implications for those in Scotland, the rest of the UK and beyond. ICAS has a duty to act in the public interest, which means that we should contribute information and insights to the debate, based on the considerable interest and experience of our members in technical areas such as taxation, but including also pensions, governance and regulatory matters. This paper is the first in a series that aims to do this; we are seeking to ask the questions in key areas that those on all sides of the debate should address over the coming months. Members are invited to contribute their views on this taxation paper, the questions it identifies or those that should be added, deleted or altered. Written responses can be emailed to tax@icas.org.uk, preferably by the end of May 2012. After the initial round of 135
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