HMRC'S CONTROLLED Foreign Companies legislation, although designed to make the UK more competitive, may actually drive jobs out of the country. It feels like it has been drafted with the paranoid assumption that all companies are looking to artificially divert income into overseas subsidiaries for tax reasons, even foreign owned companies that have come to the UK voluntarily or have a real business need for offices overseas.
The issues revolve around legitimate overseas subsidiaries being charged UK corporation tax on genuine foreign profits. The drafted rules are complex and unclear, and foreign groups considering a UK headquarters may struggle to understand or pass the new rules. This dangerously unpredictable tax bill may deter multinationals from setting up headquarters in the UK and does not fulfil the policy objective of "improving the UK as a jurisdiction for businesses to locate and invest..."
The main problem is the need for subsidiaries to employ a certain proportion of Significant People Functions (SPFs) such as day-to-day management to achieve exemptions. This works for huge companies, but smaller or foreign multinationals often have streamlined local offices supported by a centralised UK operation, and therefore have a greater proportion of UK SPFs. Even if the subsidiaries pay an Arm's Length Charge for the HQ's services, this will not support any exemptions. Employers may find the only way to pass the new rules is to move staff out of the UK into foreign subsidiaries. So the rules might drive jobs out of the UK, thereby reducing the tax take from PAYE, VAT etc. How can this be a good thing? Is this really in the best interests of the UK?
We need an additional exemption; overseas subsidiaries that conduct genuine commercial activities, and pay an Arm's Length Charge to their UK HQ, should be eligible for exemption from the CFC regime, even if the HQ houses the majority of the SPFs. Fundamentally HMRC needs to stop punishing organisations looking to create jobs in the UK.
Tim Branston, director of global taxation at Gazprom Marketing & Trading
Image credit: Shutterstock
Didnt we hear that everyone would offshore when Ireland lowered their rate? they didnt. To say that companies would move job due to the new CFCs rules is ridiculous. They wouldnt be any worse off and so wouldnt move anyone. Even if they were down slightly they still wanted move them. More scare mongering Im afriad.
Posted by: Realism, 30 Jan 2012 | 17:42
Ireland had already taken thousands of jobs from London in the late '90's and early 00's because of their ultra low tax rate. There was hardly anything else to take. All the back office stuff, a lot of the black box and legal support, particularly HQ support functions all moved to Custom House Quay. This lead to the destruction of the regular Dublin economy, with Merrill etc paying big bucks, which meant that a 1 bed flat in Dublin cost more than Chelsea!
Posted by: Paddy, 01 Feb 2012 | 09:50
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.