PracticeAuditInvestors wary over clumsy CFC rules

Investors wary over clumsy CFC rules

Insurance funds making use of controlled foreign companies (CFCs) are struggling to obtain a clean bill of health from their auditors because of confusion over diverging strands of CFC legislation

The Association of British Insurers, the UK’s largest and most influential
investor group, raised the concerns at a high level meeting between investors
and HM Revenue & Customs officials, where it argued that life insurers with
CFCs could face triple taxation on the same pool of funds under current
legislation.

There are three sets of laws for life insurance companies with CFCs, each
designed to prevent avoidance schemes that use unit trusts as a way of skirting
capital gains tax, or roll up offshore funds tax free.

The ABI is concerned that the companies could theoretically find themselves
paying tax three times, as there is nothing in the legislation specifying which
piece of law overrides the others in the case of overlap.

‘No inspector would challenge this point, but auditors have a problem with
it. They want to know why a company does not provision for these possible tax
changes and they want certainty, not the goodwill of the taxman,’ said Kate
Webster, head of tax at the ABI.

The ABI is pushing for the various rules to be ‘joined up’, with clear
guidance about what law will take precedence in the case of a clash.

Webster said HMRC had acknowledged the ABI’s concerns, but responses from the
taxman suggest that action to amend the rules will be slow.

In the minutes from the meeting, HMRC requested a technical note from the ABI
on how triple taxation could arise before proceeding further. Parliamentary
counsel would also have to be consulted

‘It is going to be a long process,’ Webster said, adding that the ABI was
also concerned about rules for cornered losses.

For more go to www.cima.org.uk

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