IoD issues controlled foreign companies call

The Institute of Directors has publishes its response to the Government’s latest consultation on how to amend the way profits made by overseas divisons of UK-based multinationals are taxed.

The issue has remained unresolved for a number of years to the frustration of business heavyweights looking for some clarity.

Richard Baron, Head of Taxation at the IoD, said: "Most importantly, the tax system must recognise business realities. It must not impose artificial divisions between types of transaction that, in commercial terms, cannot sensibly be separated.

"And it must not be too expensive to administer. Anything beyond the absolute minimum administrative burden is sheer waste”.

The foreign companies regime allows the UK to tax the profits of some companies that are resident in low-tax jurisdictions and that are owned by UK companies.

The IoD said governement officials deserve credit for a well-run consultation so far, but urged the government to ensure future consultation processes were well-designed and did not use "ill-defined" terms.

"Business cannot work with ill-defined terms," the IoD said. "In this case, European Court decisions mean that the regime can only target “wholly artificial arrangements."

We need to know precisely what will count as 'wholly artificial'. How much tax planning will be caught?"

The Iod said the new regime should also make it easy to identify low-tax jurisdictions, by having a test that is based on the headline tax rate, with a short list of countries that are caught regardless of their headline rates.

The IoD called for one more consultation on the specifics of the new regime, before moving on to draft legislation in December.

The tax regime must work with the grain of commercial practice, the IoD added.

"One concern is that the new controlled foreign companies regime might impose an artificial boundary between routine group cash management and lending between group companies, when in reality they form a continuum," the IoD added.

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