Amendments allowing companies to continue the practice of pooling foreign earnings to minimise British tax liabilities were announced in an Inland Revenue statement this afternoon.
John Fairly, senior partner at Ernst & Young’s international tax services group, said: ‘Since it became clear that the government was determined to get rid of offshore mixing we have been arguing for a more limited version which would protect UK companies as far as possible from the effects of double taxation.
‘The proposal released today goes some way towards achieving that. We recognise that the changes to the CFC legislation, which have not been withdrawn, will still leave many large companies in a difficult position, but at least the government has listened to business and gone some way towards meeting our concerns.’
The revised plans will see a limited form of onshore pooling of foreign tax on dividends allowed, where this involves genuine business activity. But the government stopped short of axing the ban on the use of Controlled Foreign Companies to avoid tax.
The measures are intended to tackle tax avoidance, with a firm clampdown on abuse of offshore holding companies. It is also aimed at protecting the tax base and underpin the government’s broader aims for the UK corporate tax system.
Confederation of British Industry director general Digby Jones said: ‘This may be a step in the right direction, but just how far is not yet possible to say. This is a complicated issue so we will need to analyse the detail carefully. For businesses across the UK, their shareholders and their employees, this matter is not yet finished.’
Fairly said: ‘It is a shame we could not have been in this position on Budget day. The consultative process went badly wrong here and I hope that lessons have been learned.’
And Jones added: ‘We find it very disappointing that they are not changing their proposals on CFCs, especially as some key global players are affected by this.’
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