BHP Billiton faces back taxes bill

Source: International Tax Review

BHP Billiton has been hit with a $643 million bill for Australian tax arrears for the 2000 to 2006 tax years

The natural resources company said the demand is made up of $336 million in tax and $307 million in interest and penalties, and concerns the capital allowances the group claimed in relation to Boodarie Iron (Australia), a subsidiary that closed down in August 2005. BHP said it is entitled to the relief and intended to contest the Australia Taxation Office's opinion.

SG comment: There is a more detailed statement of this on the Australian BHP Billiton website within the Investors and Media section.

GM announces tax charge

Source: Penny Sukhraj, Accountancy Age

General Motors has announced a $39bn charge in its third quarter results to remove net deferred tax assets from its books.

The Detroit-based company said that the charge, which affects the automaker's businesses in the US, Germany and Canada, would not impact operations or restructuring.

The hit on the books is the largest at GM so far, which has encountered a string of accounting irregularities since 2005.

GM's third quarter results, which are set to be reported today, are likely to show significant red ink, the New York Times reported.

Government caving in over CGT proposals

Source: Accountancy Age

Prime minister Gordon Brown and chancellor Alistair Darling are reportedly about to bow to fierce opposition from employer groups against proposed changes of the capital gains tax (CGT) with an offer to revive retirement tax relief for small business owners, possibly for amounts up to ₤100,000.

The turnaround comes one day after the chancellor met with the heads of yet another employer group, EEF, representing engineering manufacturers, who argued the proposed changes to the CGT would be damaging for enterprises by rewarding investment in non-business assets and sent ‘a negative signal at a time when the investment climate, especially for small firms, is set to become more difficult’.

Business owners, who are about to retire and who would be particularly hard hit by the proposed CGT changes, are likely to receive a tax exemption, possibly on the first £100,000 they make, from the sale of their business.

The Treasury is said to still be working out the level, but government sources have told The Daily Telegraph the threshold would run into ‘tens of thousands’ and could be close to a £100,000 limit. Under the old retirement relief fund, which was phased out when new CGT levels were introduced by Labour in 1998, the first £250,000 of a capital gain was tax free, but anything after that was taxed at 40%.


SG comment: I am sensing this whole thing has been such a bad start for Darling as Chancellor, with such a major revolt from UK business. I am wondering how much opinion he actually surveyed from small/medium sized business before these proposals, or perhaps he can't do that, which would be strange? I am also very comforted that UK business can have a major influence on government decisions, which is a relief.

'No job cuts' from BDO/Chiltern deal

Source: Kevin Reed, Accountancy Age

BDO's acquisition of Chiltern will see no job cuts, and will push on both firms' ambitous targets in the tax market.

'No job cuts' will follow Chiltern's acquisition by BDO Stoy Hayward, BDO's head of national tax, Paul Eagland, told Accountancy Age.

As BDO presented its deal of its latest acquisition Chiltern, which houses 75 partners plus support staff, Eagland said the combination was made to accelerate BDO's ambitious growth plans and enhance market position.

'Wider knowledge gives us a better platform to grow,' said Eagland.

Both firms had expected double-digit growth over the next financial year, which Eagland siad will be enhanced through the acquisition rather than just maintained.

'The impact on the market will be significant,' said Eagland.

He said partners of both firms had agreed to the deal 'unanimously'.

SG comment: It is quite surprising that BDO have made this sort of public announcement so soon into this deal. It is very good news for the new firm if this is maintained, and clearly shows the synergy involved with the deal. I think it also reflects how difficult it is for firms like BDO to recruit in the current tax market, and clearly they have now satisfied their need to hire new tax people through acquiring Chiltern, which had become a pure tax consultancy.

Pre-Budget Report - Business / Corporation Taxes - Impact on Big Business

Putting my very rusty tax technical hat back on, I thought I would quickly review the main changes from Alistair Darling's pre-budget report that will affect businesses:

Capital Allowances - fire safety expenditure / biofuel plants / Plant & Machinery disposal to a non resident

Corporate Tax: disguised interest

Corporate Tax: foreign exchange matching rules

Holiday pay - NIC exemption to be withdrawn

Exemptions for Investment Managers

Landfill Tax

Leasing of Plant & Machinery

Life tax measures

Measuring Tax Losses

Tax simplification for UK/EU VAT rules, anti-avoidance legislation and corporate tax rules for related companies

Spreading of tax relief for pension contributions

Tax treatment of financial derivatives


Whilst I can try to get a grasp of what each of the above measures are trying to do, it is rather beyond me to be able to say whether businesses are better or worse off as a result of the proposed changes. Taking off my tax technical hat and putting on my slightly cynical political hat, I would imagine that the net result is that more business / corporate tax will be paid. Pensioners and second home-owners will benefit as a result of individuals tax changes, which could be nice for votes, but complex corporate tax rules may help to balance the books, whilst at the same time snatching a quite a lot more tax from private equity owners.

For more detailed analysis of the above proposals, you may want to look at:

www.ukbudget.com produced by Deloitte

Views from industry tax professionals on this most welcome

What's on a Head of Tax's mind currently?

Source: Bob Reynolds, editor of International Tax Review (8 October 2007)

I asked a group of eminent tax professionals recently what were the most pressing tax issues on their desks at present. As you might expect, transfer pricing emerged as the consistent number one. The sheer complexity of transfer pricing issues and the unpredictability of outcomes was a familiar theme.

The second topic was tax audits. One global tax director said: 'What gets me is the fact that often revenue authorities do not understand our business. They do not appreciate how we arrive at our assumptions for tax due and therefore they decide to impose a stringent tax audit.'
He says that these audits rarely reveal anything. So the authority in question is no better off at the end of the process. An illusion of activity has been created and nothing else.

'They still have no greater appreciation of where we are and so they sit and gestate for six months. Then they put in another audit. This can go on two or three times.'
He points to the absolute frustration of being involved in an exercise which is time-consuming and expensive but which is generally fruitless. I have found echoes of this theme throughout the world.

OECD Addresses UK Tax Competitiveness

Source: Tax-News.com, London

A recently published report from the Organisation for Economic, Co-operation and Development (OECD) has put forward the argument that globalisation increases the importance of raising tax revenues in the most efficient way so as to maintain competitiveness.

In a bid to raise awareness of the intensity of competition between global markets, the report argued that: "Globalisation creates a tension between the need to spend on social safety nets and the need to maintain tax competitiveness, which may reduce revenues."

The OECD report went on to argue that this pressure has encouraged governments to make the corporate income tax system more efficient by cutting statutory corporate tax rates and broadening the base. As the two have offset each other, corporate tax revenue as a share of GDP has been maintained.

The Organisation went on to observe that: "The United Kingdom was ahead in the game of cutting rates, but has lost ground more recently. It will thus be important to continue with the strategy of broadening the tax base, while cutting the rate."

However, it suggested that there are likely to be limits as to how far this can go, because tax competition also plays out on the base.

Pointing to the UK as an example, the OECD observed that the United Kingdom’s system of worldwide taxation creates incentives for headquarters to relocate offshore.

It observed that: "Thus the government should consider the case for moving to a dividend exemption system of corporate income taxation, which exempts foreign source dividend income from domestic tax."

SG comment: This article reminds me that often in the past senior executives of leading FTSE companies have threatened to relocate the parent to another non-UK jurisdiction, but then have not gone through with it. I would imagine the ultimate scale of disruption to staff, and potential loss of talent, would outweigh saving on some corporate tax.

Comments on this welcome

Tax Victory for Morrisons

Source: Accountancy Age 27 Sept 2007

A big tax win has seen Morrisons slash its effective tax rate to 15%, the company has said

Morrisons declined to say what its successful tax wrangle was about, indicating only that HM Revenue & Customs had closed some enquiries going back several years, and that a ‘significant amount of corporation tax’ was recoverable.

Normally, the company would record a six-month finance charge of around £30m, but this half-year claimed a credit of £2.4m as a result of the tax boost and other changes.

The reduced corporate tax burden gifted to large UK corporates by the government in the last budget also contributed to Morrisons good fortunes, leading to a large release of deferred tax following the change in rate of UK corporation tax from 30% to 28%.

Overall, the net finance credit of £2.4m reflected the impact of a reducing pensions deficit, the one-off interest benefit on repaid corporation tax and low levels of net debt ahead of the full roll out of the group’s investment programme.

Morrisons added that the victory was a one-off and expected to see the net finance cost returning to normal levels in the second half of the financial year.

Google does software deal with the Revenue (taxcareers magazine September 2007)

Google - in partnership with Capgemini - has signed a major new deal with the Revenue & Customs to supply tax software.

The IT services group will add Google's wordprocessing, spreadsheet and e-mail tools to the portfolio of software applications it offers to its clients. This is the latest expression of Google's ongoing rivalry with Microsoft, which has long dominated the desktop market with its Office portfolio of products, including Word and Excel.

Google unveiled a paid-for collection of rivals tools in February, offering businesses a bundle of web-based services, accessible over the internet, for $50 (£25) a year per user. Since then it has said that the product has been signing up more than 1,000 small businesses a day and has been adopted by more than 100,000 firms. Microsoft Office, however, has around 240 million users. The partnership with Capgemini is designed to broaden Google's exposure to large corporate customers as it pushes its software as a service (SaaS) model - under which clients pay subscription fees for tools hosted on Google hardware and supplied through a web browser.

Capgemini manages 290,000 desktops in the UK, across private and public-sector organisations. It deals with the personal computers of 110,000 staff of Revenue & Customs and of 60,000 workers at the Metropolitan Police.

Extra holidays - impact on business

The introduction of eight additional days’ holiday entitlement could have serious consequences for some businesses.

That is the warning from the Forum of Private Business (FPB), which is concerned that firms that do not currently give their employees 28 days’ paid leave every year will have to take cost-cutting measures to cope with the changes.

The government has published new regulations to boost the minimum holiday entitlement from 20 days a year to 24 days from October 2008, and to 28 days from April 2009. All part-time workers will be entitled to the extra holidays pro rata.

The FPB’s Research Manager, Rebecca Leavers, said business owners will not just be hit by the cost of finding cover for employees on leave. ‘Although it is true that there will be a substantial cost for some firms in terms of reduced productivity or finding extra cover for workers on leave, the impact on smaller businesses doesn’t end there,’ she said. ‘There is also the administration of such a change – contracts will have to be rewritten, for example.’

The Government claims businesses would benefit from reduced absenteeism and a more motivated workforce – but Ms Leavers is reserving judgement.

‘Many employers, who have a good relationship with their staff and actively promote flexible working, and the health and safety of employees in the workplace, still suffer from absenteeism,’ she says.

SG comment - what the above article does not reveal is that the proposed 24 and 28 days would include bank holidays, so I don't think this has major shakes. Not sure about other sectors, but all tax professionals I see have a minimum of 20 days holidays plus bank holidays, so the above proposals won't really change anything.