UK corporates will be tuning into Treasury chatter

The UK government has, after all, has its head in the sand for years on the
subject, which threatens to cost it tens of billions of pounds.

But what does it mean for companies and their claims against the UK

Ultimately, nothing. In so far as claims that UK tax law has been
inconsistent with EU rules are accurate, they will continue to be so.

The UK’s consultation – which Treasury sources admit is going on but insist
is about ‘competition’ issues rather than the ECJ – is about the law going

There are reportedly a few ideas on the table. One is the exemption of
inbound dividends from tax.

In practice, most multi-nationals will have planned around paying such taxes.
Dividends attract tax only in so far as they have not been taxed in full when
they leave the jurisdiction they have come from. So if a 25% tax rate has been
levied there, a 5% rate to take it up to the UK rate may be taxed in the UK.

But such taxes can also be offset against rates that have been paid higher
than 30%, so there may not be a great deal to be saved.

The UK is thinking of ditching the regime since it conflicts with EU rules.
In order to raise some money it may lose by that measure, it is pondering
reducing the deductibility of interest against profits. That may be more
significant, with many different companies using the UK’s debt rules to reduce
corporation tax bills.

The consultation is, like the ECJ litigation, probably still in its early
days. Treasury sources say it is a question of ‘initial meetings’ and that the
government doesn’t come into them with a fixed view. But anyone with an eye to
the future attractiveness of the UK tax regime will be listening closely to the
mood music, anyhow.


Loss relief
In its simplest form, losses incurred abroad should be able to be
offset against UK profits

Advanced corporation tax
In its simplest form, payment of ACT on dividends from UK subsidiaries
to EU parents contrary to EU law

Thin capitalisation
Thin cap provisions are in breach of the EC treaty

Controlled foreign companies
Dividends received by UK corporations from European companies are
subject companies tax – illegal under EU law

Franked investment income
Payment of ACT by UK company groups on dividends from EU-based members of group
contrary to EU law

Foreign income
Tax relief should have been available on dividends received on overseas
investments between 1994-1997

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