Corporation Tax Reform: A Response to the Government's August 2003 Consultation Document

In August 2003 the government issued a further consultation document on reform to the corporation tax system. This consultation continues a process that started in July 2001 with a consultation document on large business taxation, and which appears to have become an annual exercise. In response to last years consultation, the IFS published a briefing note, and the issues covered there will not be discussed at length here.

The main focus of last years consultation was the calculation of taxable income, in particular with respect to capital assets, the schedular system and the distinction between trading and investment companies. The new consultation deals with these issues again. Much of that is repetition, although proposals have become more specific. Particularly noteworthy is a proposed change to the tax treatment of finance leases. This consultation further includes a new topic - the international and particularly the European context of the UK corporation tax system.

This briefing note will first discuss in general terms the governments stated objectives for corporate tax reform. It will then cover briefly some areas that were already discussed in last years consultation, focusing on the new developments. The international background to new proposals on transfer pricing and finance leasing is then discussed, followed by a more detailed analysis of these proposals.