Treasury functions face tax inspection microscope

Corporates will be forced to put their offshore treasury functions under the
microscope after several changes brought in, the most obvious being the removal
of the public quotation exemption which companies previously enjoyed.

A range of rules brought in to deal with the Cadbury case look set to clamp
down on offshore corporate treasury functions.

Companies with offshore subsidiaries are treated as being UK resident for tax
purposes if the government takes the view that the offshore arrangement is a tax
dodge.

Cadbury had disputed the compatibility of CFC rules with the Freedom of
Establishment provided by the EU treaty.

The ECJ decided that CFC rules pursue a legitimate aim and are compatible
with European law ­ so long as they are not applied to the profits of genuine
economic activities undertaken in an actual establishment in another Member
State.’

The government has now given its view on what it sees as genuine economic
activities, and what it does not. In pages of supplementary notes to the
pre-Budget report last week, it detailed six examples.

Discussing call centres offshore, the location of intellectual property
offshore, treasury functions and captive insurers, it said that only profits
offshore that result from ‘labour’ there, rather than purely from ‘capital’
would be acceptably outside the CFC rules.

Experts have warned this means Treasury functions offshore could be landed
with huge tax bills.

Chris Morgan of KPMG said: ‘This is a very important distinction. It means
for example, a shared services centre should fall outside the CFC rules.
However, a finance company or an intellectual property management company would
not be protected.

‘The Treasury had the opportunity to react to the ECJ’s ruling in a way that
would dramatically improve the business climate for multinationals based in the
UK and they have not taken it. If this legislation goes ahead, it is likely to
lead to a whole new raft of legal challenges in Europe,’ he added.

Companies have also lost the so-called ‘public quotation exemption’ from the
CFC rules.

Companies had been exempting their subsidiaries from the rules by floating
them in offshore markets and getting banks on board to buy the shares, which
they will no longer be able to do.

COMPANY REPORTS

Barclays rocked as judge puts it back in Enron spotlight

Barclays may find itself back in the crosshairs of a $40bn (£20.3bn)
class-action lawsuit after a judge ruled that shareholders could petition for
the bank’s reinstatement as a defendant. US District Judge Melinda Harmon
declared that litigants could file a new complaint against Barclays six months
after dismissing Enron litigants’ initial bid to have the bank held accountable
for their losses. Barclays argued that the move had only been made on procedural
grounds and remained upbeat that their position would be vindicated. ‘Barclays
remains confident the claims against it are without merit,’the bank said.

Recently, Barclays paid out $144m to settle another suit arising as a result
of outstanding transactions at the time of Enron’s collapse. In reaching the
compromise Barclays, which had claimed Enron still owed it $310m, refused to
admit liability, stating that the agreement had been reached to avoid the
expense of a court battle.

Tax advantage fails to tempt NTL into deal

NTL could have offset its own tax losses against intended acquisition ITV’s
profits to accrue no income tax for several years. Its tax losses could have
been used against ITV’s £100m profit, which would have led to a zero income tax
bill, according to press reports. Last year ITV’s tax bill was £85m. Despite the
tax advantage available to the cable company through the deal, NTL pulled out of
its intention to bid for ITV.

Scisys appoints new FD

Christopher Cheetham is to be appointed as the new FD of SciSys. The company,
which specialises in software for environmental, space and transport agencies
was previously known as Codascisys before it split with the accounting software
division Coda. Mark Hampson, chief executive officer of SciSys said: ‘I am
delighted to welcome Christopher to SciSys. He brings extensive experience of
the technology sector and has significant first-hand expertise of developing
growth companies. We look forward to working together.’ Cheetham is set to start
at Scisys in January 2007.Bank of America FD steps down

BofA’s finance chief stunned industry watchers by handing in his notice. CFO
Al de Molina announced his intention to resign days after BofA briefly overtook
rival Citigroup as the world’s largest financial services group by market value.
Joe Price, the bank’s risk management executive at the group’s global corporate
and investment bank will take over the role, BofA said.

Emblaze FD steps up

Guy Bernstein, current FD of telecoms solutions company Emblaze has been
announced as its new CEO. The appointment follows disclosure that the current
chief exec Eli Reifman is to become vice chairman. Bernstein was appointed as
Emblaze’s CFO in April 2004 after roles at Magic Software Enterprises and Ernst
& Young Global, where he acted as senior manager from 1994 to 1997.