Controlled foreign companies reform 'will boost UK'

NEW RULES on controlled foreign companies (CFC) will improve the competitiveness of the UK, advisors have said.

The draft Finance Bill, published by HM Treasury yesterday, clarified the reforms first outlined in a consultation document issued in the summer. The draft bill confirmed that companies using offshore financing structures to lend to their subsidiaries will be charged a tax rate of 5.75% rather than the full rate of corporation tax. There will also be a "gateway" test which will filter out most companies from the CFC regime altogether.

Duncan Whitecross, international tax partner at Ernst & Young, said: "The proposals mark an important step towards realising the Coalition's ambition of making the UK one of the most competitive corporate tax regimes in the G20 by making the UK a more attractive headquarter location. It should help to attract further inward investment and stop any more groups leaving - it may even attract some back."

Stella Amiss, international tax partner at PwC, said: "The most fundamental change is a new concept of a draft gateway test to filter out the majority of companies from the CFC regime entirely. It will significantly reduce the compliance and administrative burden for corporate UK for those companies that pass the test.

"However, the mechanics for getting through may not be straight forward and those that fail the test could face a tougher and more complex regime than they had before. In this sense, compliance may be harder for smaller and mid-sized firms who are less geared up to dealing with complex tax law."