ICAS warns Salmond over tax powers

SCOTLAND's most authoritative body on taxation today warns First Minister Alex Salmond that he risks destabilising the country's public finances if he presses ahead with a campaign to seize control over corporation tax.

The intervention by the Institute of Chartered Accountants of Scotland (ICAS) comes as the Scottish Government prepares to publish a consultation paper on the controversial proposal this week.

ICAS, which has more than 21,000 members, says there will be very limited scope for lowering corporation tax north of the Border if the same level and quality of public services is to be maintained.

Factors beyond the Government's control such as the yo-yoing profits of the banks and unpredictable spikes in the oil price don't make for a stable environment for devolving the tax, the accountancy organisation says.

ICAS also fears that if Scotland succeeds in lowering the levy, it will simply spark a "race to the bottom" as different parts of the UK compete to attract business.

Northern Ireland is also seeking the power from Westminster to set its own levels of corporation tax.

A lower rate than England and Wales also won't necessarily result in higher economic activity north of the Border, the organisation warns, as firms with cross-Border operations may simply play the game of profit shifting between its various UK bases to achieve the lowest bill. It won't automatically equate to more jobs and company headquarters shifting to Scotland.

Elspeth Orcharton, assistant director of tax at ICAS, says: "Anti-avoidance provisions relating to profit shifting would have to be widened to deal with this. There are significant additional administrative burdens and tax compliance costs for companies and HM Revenue & Customs from changes necessary to monitor profit-shifting through, for example, transfer pricing legislation.

"Determining the tax residence of companies, branches and permanent establishments would also create additional burdens.

"Of course, if you ask businesses if they'd like to pay less tax, they say yes. However, a tax cut in itself can't deliver a complex public financial model for a small country in a global business world."

She adds: "Devolving tax powers is contrary to the goal of simplifying tax legislation and stability at a UK level, and you could question whether such a move would make the UK as a whole less competitive on the international stage."

The Government's determination to seize more tax powers for Holyrood has already proved divisive among business leaders, with the CBI coming out against the move while several industry leaders such as Jim McColl, Sir Tom Hunter and Ben Thomson are backing the SNP's calls.