PBR 08: Tax advisers puzzled by foreign profits forecast

Leading tax professionals have expressed surprise at numbers outlined in the
pre-Budget report on taxing foreign profits.

The Treasury estimates taxes on foreign profits to generate £75m for the
Exchequer over 2008/09 and by 2012, expect it to cost £275m – not withstanding
other measures which could impact the numbers, such as the worldwide debt cap.

Deloitte tax partner Bill Dodwell said he failed to see how the Treasury
calculated the forecast figures, despite being satisfied with seeing foreign
profits addressed by chancellor Alistair Darling.

‘It’s a pretty good announcement. I’m not sure it’s going to stop someone
emigrating who was keen to do so but those who were undecided might now stay and
stake a case for what they would like to see,’ he said.

In the short term, the Treasury is expecting to generate revenue out of
foreign profits via companies repatriating cash back into the UK, and there may
be some initial interest disallowance.

Dodwell said he is uncertain about the Treasury’s justification of the
figures and said there is no explanation for the -£275m figure provided for

‘We don’t understand where they’ve got that number from. I would’ve expected
that to be nil or flat.

‘Why they think all of a sudden they’re given away this gigantic amount of
money is very implausible. There’s nothing I can see in any of the documents
that support their reasoning,’ he said.

According to Jonathan Hornby, senior director of corporate tax, Alvarez and
Marsal Taxand is also surprised by the forecast given the Treasury were
originally estimating costs to the Exchequer to be £600m – £800m per annum.

‘Most commentators didn’t understand where those calculations came from in
the first place. The Treasury never made that information available. This is
just continuing the trend of detaching their numbers to policy decisions,’ he

Hornby questioned whether the estimated provided in the report will be netted
against the increased revenue that the Treasury expects to generate from the
worldwide debt cap.

Further clarity in the form of draft clauses for 2009 is due within the next

Further Reading:

to expect from the pre Budget report

await foreign profits plans in PBR

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