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U.K. Closes Corporation-Tax Loophole in Clampdown on Avoidance

The U.K. Treasury said it has closed a loophole in the corporation-tax system that allows companies to deduct certain types of expenses from profit.

A scheme, notified to Her Majesty’s Revenue & Customs this week, allows companies to record artificial losses that can be used to reduce their corporation-tax bill, the Treasury said. It will be closed with immediate effect. Further details of how the loophole operates were withheld to prevent tax advisers modifying it to continue exploiting the rules.

The government “will not put up with tax avoidance which uses artificial structures to aggressively exploit rules,” Treasury ministery David Gauke said in an e-mailed statement. “Within days of HMRC being notified of the existence of this scheme we took decisive steps to shut it down once and for all.”

Chancellor of the Exchequer George Osborne has said he will devote more money to tackling tax avoidance as Starbucks Corp. bowed to pressure from Parliament and said it will consider paying more tax in Britain. A 77 million-pound ($125 million) effort to improve HMRC’s technology and recruit more staff may yield an extra 2 billion pounds in unpaid tax from companies such as Starbucks, the world’s largest coffee-shop operator, Osborne said.

The Treasury is responding to a backlash that followed a Nov. 13 parliamentary hearing with executives from Starbucks, Inc. and Google Inc., who were criticized for using complex accounting methods to reduce their tax liabilities in the U.K.

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