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Osborne proposals for anti-abuse tax rules could damage UK competitiveness, expert warns

Plans to tackle UK tax avoidance by international technology companies could damage UK competitiveness if they are brought in before international measures are finalised, a tax law expert has warned.

Heather Self of Pinsent Masons, the law firm behind Out-Law.com, was commenting as George Osborne, the UK's chancellor of the exchequer, told the Conservative Party in Birmingham that he would "lead the world" by introducing anti-avoidance measures as part of this year's Autumn Statement.

"Some technology companies go to extraordinary lengths to pay little or no tax here," he said in his speech. "If you abuse our tax system, you abuse the trust of the British people. And my message to those companies is clear: we will put a stop to it. Low taxes, but low taxes that are paid."

He said that it was "this government that started the global work on changing international tax rules", currently being carried out by the Paris-based Organisation for Economic Cooperation and Development (OECD). The OECD's first formal proposals aimed at creating a single set of international tax rules and preventing multinational companies from artificially shifting profits to low-tax jurisdictions are not due to be finalised until September 2015.

However, Self warned against "unilateral moves" in advance of the OECD's base erosion and profit shifting (BEPS) project being finalised.

"The UK should of course take the lead on tax avoidance, but only where it is sure that others will follow," she said.

"I suspect that the chancellor intends to look at strengthening the UK's anti-abuse rules in relation to treaties and hybrids - in effect, early implementation of the OECD's actions 2 and 6. The need to get this right and the potential damage to the UK's finance industry if imported hybrid rules are impossible to implement in practice cannot be overstated," she said.

The OECD's recommendations include proposals to neutralise so-called 'hybrid mismatch' arrangements, prevent the abuse of tax treaties and ensure that transfer pricing rules do not allow companies to avoid being taxed in the jurisdictions where they make their profits. Hybrid mismatches allow companies to claim tax relief for the same expense in two jurisdictions, or to claim tax relief in one jurisdiction without a corresponding tax charge in another. Updated transfer pricing rules would also ensure that profits on 'intangibles' such as intellectual property were properly taxed.

The Labour Party set out its own plans for a "coordinated crackdown against tax avoidance" if it was elected to form a government in 2015 at its own annual conference last week. Plans include closing "loopholes" allowing hedge funds and employers of temporary workers to pay less tax, and ending the 'quoted Eurobond exemption', which allows overseas investors to receive the full credit of interest on certain loans made to companies. The party has also proposed a new "mansion tax" on homes worth over £2 million, and a new 'windfall' tax on tobacco that would raise money for the NHS.

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