That identity requires that the opening corporation tax liability, plus the corporation tax liability for the year (wherever it is scattered in the accounts, which is an issue I will come to), less the corporation tax paid, must equal the closing corporation tax liability. This is a simple statement of fact that must be true.
That opening liability is an estimate of the future liability, no?
The closing one also.
And if the estimates – say tax law has changed, or a court case elsewhere has crystallised a surmise about what tax is payable etc – have changed then this statement of fact about the identity is not true.
I don’t have the technical knowledge to know whether this is true or not. So, some of you do. So, is it true?
As an example. Take a not Cadbury, not Vodafone, before the ruling on CFC on EU subsidiaries. The company lists in its estimates of tax to be paid – subject to that confirmation of the law – that tax is payable on the profits in that CFC controlled EU subsidiary.
Through comes the news that Cadbury wins, that Vodafone is free and clear. The closing tax estimate is now clear of that potential taxation of the CFC controlled EU subsidiary while the opening one included it.
Have we, or have we not, just shown that the identity doesn’t hold?
And if tax laws change every year, as they do, and court cases are won and lost with HMRC every year, then estimates of future tax payments will change in this manner every year?