The Chartered Institute of Taxation (CIOT) is urging the UK Government not to rush ahead with implementing new globally agreed corporation tax rules before other competitor countries.

John Cullinane, CIOT Director of Public Policy, said: "The Government's priority should be to make sure that there is an effective implementation of the minimum global corporation tax rules, in detail as well as in principle, so that the end result is a multilateral set of interlocking rules that faithfully deliver the policy aims. It is not sensible to go through the motions of doing something in the UK quickly which will not deliver those aims.

"It is more important to do this right and to do it together than it is to do it quickly."

Last October more than 135 countries in the OECD/G20 Inclusive Framework on BEPS agreed a two-pillar solution to reform international tax to deal with the challenges arising from the digitalisation of the global economy, aiming to ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate and generate profits. 

‘Pillar 1' involves a partial reallocation of taxing rights over the profits of MNEs to the jurisdictions where consumers are located. The detailed rules that will deliver this are still under development by the Inclusive Framework. 

‘Pillar 2' intends to ensure that MNEs pay a minimum rate of 15 per cent corporation tax (or their version of it) in every country they operate in. The Inclusive Framework has published model legislation (Model Rules) with the aim for countries to legislate these Pillar 2 rules (also known as the Global Anti-Base Erosion (GloBE) Rules) in 2022, with effect from 2023.

But the speed at which the rules have developed has led to significant challenges with the rules as published, which would result in arbitrary and unsatisfactory outcomes.

John Cullinane added: "We welcome the global agreement on a minimum rate of corporation tax but making it happen is complicated. The legislation is complex and poses a huge administrative and compliance challenge for many tax authorities as well as for multinational businesses. 

"We recognise and support the UK Government's desire to take a leadership role in relation to international tax. But we suggest that this should focus on continuing the work internationally and encouraging all jurisdictions to reach agreement around what adaptations to the Model Rules should be permitted in the implementation of them to achieve the policy aims of Pillar 2.

"If, as it seems, 12 months is too short a time to implement these as yet incomplete and very detailed laws successfully, especially given the need for them to align with other countries' tax regimes, it is better to accept that than declare a victory which may turn out to be a false and costly dawn.

"Additionally, introducing botched rules in the UK ahead of other jurisdictions risks making the UK a less attractive place for businesses in comparison to other countries, at least in the short term. Our understanding is that no other country will be implementing the Pillar 2 rules in 2023.

"We urge the Government to confirm to businesses as soon as possible that it will delay the implementation of the Pillar 2 rules in the UK, until at least 2024, or such later date as it is clear that other jurisdictions are going to implement the rules."

CIOT has also raised concerns about some aspects of the Model Rules. John Cullinane explained: "Some arbitrary results potentially arise from the technical design and Model Rules themselves and that the Government says it is going to implement the rules, warts and all. 

For example, the rules could in some circumstances create a tax bill for a company in a country where they have no net income. This arises as a result of the treatment of permanent differences between tax and accounting treatment. 

"Also the requirement that deferred tax balances be recast at the minimum rate undermines the ability of the rules to achieve the policy objective of smoothing the effective tax rate. 
He further said: "We suggest the Government takes more time to get international agreement to amend the rules or agree that departures from them are permitted in domestic rules. 

"The latter route would mean that domestic rules can be enacted in a way that does not give rise to the arbitrary results. We would prefer an agreement through the Inclusive Framework to amend the rules themselves, but it remains unclear that there is the political will for this approach."