The Treasury is being forced to rethink the policy of taxing foreign dividends, as experts warn that multinationals are shunning the UK in favour of countries with more lenient corporate tax regimes.

The Treasury has also come under pressure from the European Court of Justice , which ruled last year that the final tax charge on a foreign dividend should not be greater than the charge on a domestic dividend.

The Times reports today that the Treasury will have to reconsider corporate taxation if it is to remain competitive.

'I think they will have to look at taxing foreign profits. If a foreign company asked a tax adviser where it should locate in Europe, I don't think he would recommend the UK as a first choice,' Ian Brimicombe, head of tax at AstraZeneca said.

Last week Kraft Foods said it would follow Colgate-Palmolive and Procter and Gamble to Switzerland and cited taxation as one of the reasons for its move.

Further reading:

Detail of ECJ ruling on FII case disappoints taxpayers

Treasury faces tax rewrite as European challenges mount

 Treasury steels itself for massive tax hit from ECJ