Budget 2000: Double tax changes to hit multinationals
Companies which earn income overseas may find themselves paying more tax and facing increased administration costs as a result of 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 had already paid tax equivalent to UK rates. As a result they incur no extra liabilities to the Inland Revenue.
Ian Stewart, tax partner at KPMG, said: ‘The proposed changes to double tax relief for UK multinationals is 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 reconsider this and allow full onshore mixing.’
The reform, described as ‘cynical’ by one international tax specialist, will come into effect from 1 April, and is expected to raise an extra £100m a year for the Revenue.
Stephen Barrett, head of tax consulting at Ernst & Young, said: ‘It’s ariad on multi nationals.’It will increase the tax burden and the administrative burden.’
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