Battlelines drawn in CFC conflict

The consultation document proposes a series of wide-ranging reforms to corporate taxation, including the exemption of foreign dividends from tax, new controlled foreign company rules and restrictions to interest relief in the UK.

The foreign dividend rules have been welcomed, and although there are concerns about reducing interest relief according to a multinational’s debt global levels, Treasury proposals have been broadly well received.

But in the area of CFCs stark divisions are emerging.

Current proposals will require groups to separate all foreign income as either ‘passive’ or ‘active’, raising fears of increasing red tape and bureaucracy.

‘It is unrealistic to expect international companies to go through every minute detail of foreign income in order to decide whether it is active or passive,’ says Grant Thornton international tax partner Heather Self.