Plans to tackle tax-avoidance could punish UK property and infrastructure to the tune of £700m a year, according a study by the Centre for Policy Studies.
Seventeen leading companies and investors in property, including British Land, Land Securities, Brockton Capital, Hammerson, Nabarro and Clearbell Capital, have backed the study into OECD recommendations aimed at targetting multinational tax-avoiders from April 2017.
The base erosion and profit-shifting (BEPS) proposals are aimed at stopping multinationals shifting profits between different countries to take advantage of the lowest tax rates.
BPF: tax evasion measures will increase debt finance cost
Author Rachel Kelly, senior policy officer at the British Property Federation, said the restrictions would “inadvertently impose significant burdens” on sectors with high borrowing ratios, such as real estate and infrastructure investment.
The changes propose that tax relief on the cost of interest would be restricted to 30% of a company’s earnings, with a secondary “group ratio” rule for capital-intensive groups with commercially higher interest costs.
But Kelly said they would hit property and infrastructure as real estate investors can incur interest rates of as much as 60% of earnings, leaving them facing a much higher tax liability.
The group ratio rule would not guarantee a full deduction for third-party interest, Kelly said.
Kelly said the government should delay the proposals and make all third-party debt on property and infrastructure investment tax-deductible. Existing debt arrangements should also be protected from any new rules.
The 17 companies that backed the study signed a statement saying: “The government’s proposals to restrict tax-deductibility of interest will be particularly penal for capital-intensive businesses.
“The restrictions will lead to lower investment available for real estate and infrastructure; and in turn, a reduction in the jobs and growth that the investment would have stimulated.
“We support a delay in the implementation of these measures to allow the government time to ensure that the rules will work fairly and appropriately for all industries, without stemming investment into the housing and infrastructure that this country so badly needs.”
Companies backing Centre for Policy Studies study
- Assura
- British Land
- Brockton Capital
- Capital & Regional
- Clearbell Capital
- CLS Holdings
- Derwent London
- Europa Capital
- Great Portland Estates
- Hammerson
- Helical
- Land Securities
- Moorfield Group
- Montagu Evans
- Nabarro
- Oxford Properties
- SEGRO
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