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Tax experts snub call to reinstate ACT on pensions

Tax experts have dismissed calls from Opposition MPs, unions and the pension industry to reinstate advance corporation tax credits on pension schemes, claiming such a move would fall foul of a European Court of Justice ruling.

Despite intense lobbying by opponents, including Lab-our MP Frank Field, for a full or partial reinstatement of ACT credits abolished in Chancellor Gordon Brown&#39s £5b tax raid on pensions in his first Budget in 1997, corporate tax experts say subsequent case law prevents the Government reversing its position.

Following the scrapping of the credit in 1998, the Government lost a case brought by German company Metall-gesellschaft in the European Court of Justice. The court ruled that the tax discriminated against companies from other EU countries which could not avoid ACT.

Work and Pensions Secretary Alistair Darling also ruled out reinstating the tax credit in an interview with the BBC&#39s On The Record programme last weekend. He said: “If the ACT changes had been the main driver, you would have expected all this to have happened four years ago.”

But he denied that a booming stockmarket had camouflaged the effect until now.

Darling revealed he had asked the accounting standards board to reconsider the use of FRS17, preferring inst-ead other international acc-ountancy practice which would allow for more smoothing in the way that pension liabilities are reflected in companies&#39 books.

Institute of Directors dep-uty head of policy Richard Baron says: “Going back to the previous ACT position is a non-starter. It would be quite tricky to get round the Metallgesellschaft problem. The whole tax system has moved on.”

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