TAX RELIEF FOR MULTINATIONALS – Giants face double tax.

Companies which earn income overseas may find themselves paying more tax and facing increased administration costs as a result of Budget changes to double taxation relief. The government intends to cap the rate of underlying tax paid on repatriated profits at 30% – removing at a stroke the tax benefits gained from higher relief rates for some countries. The reform will essentially end the use of so-called ‘Dutch mixers’ which allow multinationals to demonstrate they have already paid tax equivalent to UK rates. As a result they incur no extra UK tax liabilities. Iain Stewart, tax partner at KPMG, said: ‘The proposed changes to double tax relief for UK multinationals are likely to lead to increased overall tax being paid by these companies. ‘Rather than the administration savings claimed by the Revenue, managing dividend flows from mixers will prove a real headache. This measure is significantly less generous than the US regime for foreign tax credits, and does nothing to encourage the use of the UK as holding company location. The Revenue should allow full onshore mixing.’ The reform, described as ‘cynical’ by one international tax specialist, takes effect on 1 April, and should raise an extra #100m a year for the Revenue. Stephen Barrett, head of tax consulting at Ernst & Young, said: ‘It’s a raid on multinationals. It will increase the tax burden and the administrative burden.’

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