The Uk's official budget statements is due on the 11th March, and we're exepcting to hear on a myriad of important topics. Below Finance Monthly hears from Brendan Sharkey, Head of Construction and Real Estate at MHA MacIntyre Hudson, on the potential tax reforms experts woudl like to see postively impact capital investment, renovations and retirement builds.
The green light for HS2 was good news and freeports would stimulate the construction sector if they end up being approved. On the other hand, the IR35 reform is going to bite hard in April and the general level of investment could still be improved.
A number of reforms to tax rates and reliefs are overdue and the budget would be as good a place as any to push them through.
It is never a bad idea to encourage investment in plant and machinery, particularly when the proposed immigration reforms will shrink the labour pool in certain parts of the country, so the Chancellor would be well advised to raise the Annual Investment Allowance (AIA) which currently stands at £200,000.
A reduction in Stamp Duty would also be welcome; the tax inhibits buyers in its current form. An exemption for older people looking to downsize could also stimulate the market for specialist retirement accommodation, where the UK still lags the likes of the US and Australia.
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VAT on renovations also ought to be reduced to 5% across the board. It is of course sometimes possible to pay at this lower rate, but this ultimately depends on the circumstances. HMRC could simplify this procedure and help bring older properties back into circulation by mandating that the rate should always be 5%, particularly if this helps towards energy saving.
Finally, Entrepreneurs’ Relief needs to be retained. It does aid business creation in the construction sector, but reducing the cap to say £3m from £10m and requiring the shares to have been held for a longer period would target the relief at smaller hard-working SME owners who have invested considerable time in their businesses.”
Company voluntary arrangements (CVAs) have been a mainstay in the financial news over the last six months due to their status as the restructuring tool of choice for many of the UK’s high street stores. House of Fraser, Mothercare, New Look and plenty more retailers besides have all used CVAs to try to renegotiate their existing debts with unsecured creditors. But with this increasing use has come more scrutiny, with a number of parties unhappy with the way the current system works.
Are CVAs fit for purpose?
There is growing concern among a number of parties that CVAs, as they stand, are being abused. Company voluntary arrangements are an insolvency tool that’s designed to give struggling businesses more time to repay their debts and an opportunity to restructure away from the constant threat of legal action from creditors. However, they are increasingly being seen by creditors as an easy way for businesses to avoid administration and downsize their operations to the detriment of their creditors.
Landlords, in particular, feel like they’re getting the raw end of the deal. That’s because many struggling retailers, with House of Fraser being a recent example, are using CVAs to force reductions in the rent they pay and even break leases to close stores. It’s not only landlords who are feeling aggrieved. Other retailers that are battling to stay afloat are having to watch their rivals secure lower rents through CVAs while they are left to pay the going rate.
Landlords feel they’re not having their say
For a CVA to be put in place, it must receive the approval of 75% of the company’s creditors by the value of debt. However, while it is only unsecured creditors that will be affected by the terms of the CVA, secured creditors like banks and other financial institutions are still allowed to vote on the proposals. That means many CVAs are being approved without being accepted by landlords and other unsecured creditors who will take the financial hit.
Landlords are also concerned that CVAs are not always being used by retailers as an absolute last resort. Some landlords claim that retailers are not ‘on the cliff edge’ and are simply seeking a way to reduce their debts. This is often to the detriment of landlords and the benefit of the retailers’ shareholders. As an example, House of Fraser asked its UK landlords to accept a 30% rent cut, yet in the same month it opened a new 400,000sq. ft. store in China.
What reforms, if any, are needed?
The insolvency trade body R3 recently published a report that evaluated the success and failure of CVAs and recommended some changes that could be made to make the process more attractive. The report made a number of recommendations:
- CVAs should not last longer than three years without good reason.
- The duties of company directors should be made clearer and include a requirement to address financial distress immediately.
- CVA documentation that’s filed at Companies House should be more transparent and informative.
- Public sector creditors that vote on the CVA proposal should have to explain their decision fully if they refuse to support it.
- Standard terms and conditions for CVAs should be made available and adopted.
This will provide some relief to landlords who will be pleased to see the recommendation relating to director’s duties and the requirement to address financial distress earlier. They will also be reassured by R3’s agreement that CVAs in their current form are too long.
As yet, there’s no indication as to whether the recommendations are likely to be implemented. However, the report does make a strong case for the government to look again at the CVA process and implement at least some of the reforms.
Mike Smith is the Senior Director of Company Debt and a turnaround practitioner who specialises in giving small and medium-sized businesses debt advice and guidance on CVAs.
The global trend of the past few years towards a "low-rate, broad-base" business tax environment continues, as worldwide economic growth shows no signs of improving and countries introduce new or improved incentives to compete for business investment that will stimulate growth.
Canada isn't immune to global trends, but its tax policy direction is hard to predict at the moment due to the uncertainty around tax policy reforms being considered in the US. This is according to the EY Outlook for global tax policy in 2017, which combines insights and forecasts from EY tax policy professionals in 50 countries worldwide.
"Tax reforms emerging in Europe and the U.S. are putting pressure on governments to find creative ways to compete for business investment," says Fred O'Riordan, EY Canada's National Advisor, Tax Services. "Canada has improved its international tax competitiveness over a number of years, but it's at risk of losing some of this ground, in particular if the United States goes ahead with a tax reform package that includes significant rate reductions."
Competition for investment globally
With the implementation of the G20/Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) recommendations, governments are now more compelled to compete with each other and attract investment through different tax changes. According to EY's report, of the 50 countries surveyed, 30% intend to invest in broader business incentives to stimulate or sustain investment, and 22% plan to introduce more generous research and development (R&D) incentives in 2017.
But Canada is bucking the global trend of investment-stimulating policy. Here, the government has been more focused on the personal income tax side and redistributing the tax burden so the highest income earners bear more and middle income earners bear less.
Tax reform in the United States may impact Canada
An increased likelihood of tax policy reform in the US is strongly influencing both the Canadian and global tax policy outlook. With a Republican President and Republican control of both houses of Congress, the probability of a reform package being implemented is higher than in previous years. As a result, Canada and many other countries are taking a "wait and see" approach until new legislation is adopted in the US before they commit to any reforms themselves.
"A "border tax adjustment mechanism" is currently proposed as part of the tax reform package in the US," says O'Riordan. "Because our two economies are so closely integrated, this could have a significant impact on cross-border trade in both goods and services with our closest neighbour. Any Canadian company doing business with the US definitely ought to pay attention to upcoming changes in the US."
Corporate income tax rates
Of the 50 country respondents, 40 report no change or anticipated change to their national headline corporate income tax (CIT) rate in 2017, but rates continue to decline in a number of jurisdictions, particularly in Europe. Canada is one of only two countries where the rate actually increased (the average combined federal/provincial rate increased marginally -- by 0.2 percentage points). This in itself is unlikely to deter investment, but is still slightly out of step with global peers.
(Source: EY)
Androulla Soteri, tax development manager at MHA MacIntyre Hudson below discusses the consequences of the US President’s potential implementation of tax reform in the country, and the impact it could have on UK business.
Corporation Tax (CT) has been an important part of the election manifestos, and we now find ourselves in a coalition of two parties supporting a move towards lower CT rates. This makes it clear which direction the new government will decide to go in.
The main argument for dropping CT rates is to make the UK a more attractive place for multinationals to locate business. This in turn increases the job-pool which raises further tax revenue in the form of National Insurance contributions, and consequently VAT as consumers have more disposable income to play with. In over a decade, CT has never made up more than 11% of total tax take. Given its relative lack of significance, there’s a strong argument to suggest an overall benefit in reducing it.
One of the arguments against a reduction is that if big multinational companies were forced to pay their fair share of CT, this would help reduce the budget deficit and national debt, and also contribute to public services such as the NHS, schools and policing.
But it’s also worth taking a look at the US, which has one of the highest rates of CT in the world at 35%. One of Trump’s intentions is to drop the rate to 15%, to bring US companies back home. If this happens, US businesses could lose interest in investing in the UK, especially with Brexit looming on the horizon. Instead, they could look to repatriate headquarters, increasing employment of US citizens and consequent tax revenues associated with it.
If Trump’s plan is a success, the UK could be shaken hard over the next few years, especially in light of ongoing Brexit uncertainties. Lowering CT rates in the UK may therefore be an incentive for companies to remain within a benign competitive UK tax system.
The task of running the UK over the next two years is unenviable. But if the Government sticks to its plan of lower CT rates, we’ll certainly see clear evidence within the next few years of whether this is good or bad for the economy.
Business leaders are skeptical of Congressional predictions that US tax reform will come by this summer, with more than half (53%) predicting that significant business tax reform won't arrive until 2018, according to a recent poll by KPMG LLP, the US audit, tax, and advisory firm.
Only 16% of more than 1,000 respondents polled during a recent webcast expect tax reform to be achieved in 2017. In addition, 11% do not expect reform until 2019, and 21% are unsure of the timing.
"While many factors could affect the timing and eventual content of the tax reform proposal, the legislative process clearly needs to be a key area of focus for business leaders," said Jeffrey C. LeSage, Vice Chairman – Tax at KPMG. "Although the outcome is uncertain, we are looking at the best chance for meaningful tax reform in decades, so attention will likely continue to be high as developments unfold," he added.
When asked which of the proposals in the current House Republican tax plan would have the greatest anticipated impact on their business, 41% cited the proposal's new reduced corporate tax rate structure. From an industry perspective, respondents from the retail and industrial manufacturing sectors selected the hotly-debated border adjustment proposal as likely having the greatest impact on their organizations, at 38% and 37%, respectively.
"Developments on the tax reform front could evolve quickly," said John Gimigliano, principal in charge of Federal Tax Legislative and Regulatory Services in the Washington National Tax practice of KPMG. "That's why business leaders need to stay engaged, consider how the current House GOP Blueprint may affect them, and be ready to respond quickly as tax reform advances through the legislative process."
The poll of more than 1,000 tax, financial and other business professionals was conducted during a March 2 KPMG TaxWatch webcast that is part of the firm's Tax Reform Thursdays webcast series.
(Source: KPMG LLP)
TaxTalent recently released its most important tax staffing report of the year. The 2017 Global Tax Market Assessment identifies a potential perfect storm that could cause significant disruption for the tax industry in 2017.
Data indicates another thirty-year transformation cycle could result from major tax reforms.
The 2017 Global Tax Market Assessment is produced in conjunction with TaxSearch, Inc. and British-based BPA and forecasts global tax market trends and their effect on staffing, retention, and talent development within corporate tax departments.
According to Tony Santiago, president of US-based TaxTalent and TaxSearch: "This is a critical time for corporate tax functions to pay attention to what could be a major market shift. We believe there are three major trends that, if combined, could have a big impact on the tax industry in the near future."
The three potentially disruptive market trends include:
- Major tax reform in the US.
- International tax regulatory changes.
- Major demographic shifts in the tax profession.
Santiago stresses that tax and finance leaders need to be prepared by looking at past data as evidence of another thirty-year disruption cycle. "It appears we could be entering another major market transformation like those experienced in 1986 and 1954. Corporate tax professionals need to be aware of these potential market changes so they can prepare their tax departments and be equipped to respond to any fallout from this situation."
Key Results from the 2017 Global Tax Market Assessment:
- 2017 will be a candidate-driven market in the US and globally, even more so than in 2016.
- The type of candidates needed in tax departments - having employees who are adaptable and flexible to change - will help tax departments significantly. These are key traits to look for while hiring as well as identifying existing employees in the US and globally.
(Source: TaxTalent)
Deloitte's Tax Policy Leader Jon Traub, principal, Deloitte Tax LLP, offered the following statement in response to the tax reform outlook provided during President Trump's address to Congress on February 28th 2017:
"It's an exciting yet uncertain time for tax reform, with prospects rising for Congressional action and talks of revenue raisers to pay for it swirling around the Capitol and in corporate boardrooms. What is certain is that difficult choices face Congress if they intend to enact tax reform this year. We are in the very early stages of a very long game, so twists and turns are more likely than not.
"There is much uncertainty in all of this, but it is possible we will emerge from the debate with an entirely new way of taxing businesses in the US Companies are rightly eager to understand the potential impact of these proposals on their tax burden and supply chains. To be prepared in this uncertain tax environment, companies can consider situational modeling that weigh proposals against one another, scenario plan, and create customized alternatives in order to analyze the effects of various tax reform proposals."
(Source: Deloitte Tax LLP)
A delegation of the National Bank of Angola (BNA) headed by Governor Valter Duarte da Silva was recently in Paris for meetings with the Bank of France and other French banking system institutions, to strength institutional relations and raise awareness in the French financial sector for the reform of the regulatory and banking supervision framework in Angola.
Through the BNA, Angola has developed a very strong effort to quickly adapt its financial system to international prudential standards and good practices with the objective of restoring international credibility and confidence in the Angolan financial system, aiming its recognition abroad by their counterparts.
BNA has been imposing on Angolan commercial banks the adoption of best practices in financial regulation and supervision, and as a result of this effort seven of the largest banks operating in Angola have already adopted International Accounting and Reporting Financial Statements Standards.
"Our expectation is that the European Central Bank and the United States Federal Reserve will recognize the National Bank of Angola as an entity of equivalence in banking regulation and supervision in the first half of this year," said Valter Duarte Silva.
The Angolan visit to the French capital is part of a program of contacts and visits of the BNA to the world's financial centres.
The BNA has developed several contacts with international institutions and counterparts such as the World Bank and the International Monetary Fund, the Federal Reserve of the United States, the Bank of England, the Bank of France, the Bank of Italy, the Bank of Portugal And the Reserve Bank of South Africa in order to adapt to good banking supervision practices in Europe and the United States, and to show what has already been done in Angola, as well as to train its technicians and senior management.
"Our work has been developed in partnership with the International Monetary Fund and the World Bank and in close collaboration with the central banks of Portugal, South Africa, Italy, the United Kingdom, France and the United States of America, with which we have already established protocols for training human resources and for technical assistance," said the governor of the BNA.
The Angolan delegation has held meetings at the highest level with the Governor of the Bank of France, Mr. François Villeroy Galhau, and with representatives of French banks such as BNP Paribas, Crédit Agricole and Natixis, as well as institutions such as the French Banking Federation, MEDEF International, The International Financial Action Task Force (FATF) and the Paris Club.
(Source: jlma.pt)
A coalition of over 25 American businesses of diverse sizes and industries, including both importers and exporters, representing nearly every sector of the American economy have launched the American Made Coalition in support of pro-growth tax reform. The coalition strongly supports modernizing the outdated US Tax Code by removing barriers to economic growth and American job creation. The Coalition believes the obsolete and biased tax system subsidizing imports of foreign goods must be replaced with one that restores the United States' competitive advantage in the foreign marketplace.
"American workers and businesses are not competing today on a level playing field with foreign competitors because of an outdated and unfair tax system," said John Gentzel, coalition spokesman. "The American Made Coalition is committed to advancing legislation that modernizes our tax system, levels the playing field for American businesses and workers, encourages investment, incentivizes job creation in the US, and helps American-made products compete worldwide. The House tax reform blueprint has the best chance of moving real transformative tax reform for the first time in more than 30 years."
The American Made Coalition is focused primarily on supporting reform efforts, championed in the House of Representatives by Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, that would lower tax rates, encourage domestic investment, spur job creation, and modernize the overall tax system for a 21st Century economy.
A key aspect of the House tax reform blueprint is a border adjustment provision that would eliminate the "Made in America tax" - an unfair tax hitting goods produced domestically while favoring foreign-made goods. By ending the "Made in America tax," we can create a more favorable business environment for American manufacturing and level the playing field so American workers can compete with foreign competitors.
The Tax Foundation estimates the House Blueprint proposal will create 1.7 million new jobs, boost GDP by 9.1%, and increase wages by 7.7%.
The American Made Coalition believes that 2017 presents an important opportunity to modernize our tax system and a focused public campaign - one supporting competitive business tax rates, a modern territorial system, and the border adjustment of businesses taxes - is urgently required to achieve success. Together, these three components are essential to leveling the playing field for American-made goods and services and encouraging American jobs, investment, and manufacturing.
(Source: American Made Coalition)
