One of the striking things, which you would be forgiven for not guessing from the Chancellor’s speech yesterday, was the extent that EU (and/or OECD) policy lay behind yesterday’s Budget announcements. For example, the hand of Brussels was not terribly apparent, when the Chancellor said at the despatch box that he was making the tax system “simpler and fairer” by changing the rules relating to the ability to reclaim input tax by excluding supplies made by foreign branches – while omitting to mention that the change was required because of the ECJ’s judgement in Credit Lyonnais (C-388/11). A similar comment could be made with respect to the changes to the rules governing venture capital schemes (which are being introduced to address concerns in relation to change to the state aid rules), country-by-country reporting, interest reporting using the common reporting standard (bringing with it, alas, the third set of regulations governing FATCA reporting obligations in as many years) as each of these reforms is driven by the EU/OECD.
Yet, if as we are told “Britain is walking tall” again, those Britains who are entrepreneurs may have rather less spring in their step this morning. In addition to the change announced in December denying Entrepreneurs’ Relief on the disposal of goodwill to a close company which is a related party (and the change to the intangible rules denying relief to a company with respect to goodwill), a disposal of personal assets will not qualify for relief unless accompanied by a disposal of a substantial (5%) shareholding/share of partnership assets. Furthermore, it will no longer be possible to qualify for relief by accessing trading activity through a joint venture or partnership.
A slightly more insidious theme, which did not break the surface of the pre-election rhetoric, is the emergence of what seems to be HMRC’s latest whizzy Chancellor’s legislative gadget - the “reasonable to assume” test. We had already been told that this test, which seems to be a variant of the “reasonable to draw the conclusion” test introduced to the transfer of assets abroad rules in 2005, would feature in the new corporate rescue exemption that is being introduced to the loan relationship rules and in the context of the diverted profits tax. A “reasonable to assume” test also now appears in the new rules introduced yesterday to prevent carried forward losses being refreshed (notwithstanding that such arrangements passed muster only last year before the GAAR Advisory Panel). The somewhat protracted discussions relating to the draft guidance on the corporate rescue exemption may serve as a straw in the wind as to the difficulty associated with deciding quite what it is (and is not) reasonable to assume …. If the UK tax system is to move further away from a focus on the actual facts, towards a focus on “reasonable assumption”, this is not a good omen either for tax payers seeking certainty or for a “United Kingdom” seeking to present itself as open for business. As the Institute of Fiscal Studies warned last week when it looked back on the Coalition’s record in relation to tax during this Parliament, decreases in the headline corporation tax rate, should not serve to mask a less competitive tax base.