Tax advisers dismiss US-style interest relief

Following a series of judgements in the European Court of Justice last year,
particularly the Cadbury-Schweppes case on controlled foreign companies and
franked investment income, the Treasury is considering revising tax relief on

One suggestion is to adopt the allocation rules used in the US. Under this
system a company has to declare how its assets are spread across the world and
then calculate interest relief based on that split. If a company repatriates a
dividend from a foreign subsidiary, the interest relief available is reduced

John Whiting, tax partner at
PricewaterhouseCoopers, said:
‘The general feeling is that allocation would be a retrograde step. The
attractiveness of the UK tax system is the flexibility of its interest relief

And Bill Dodwell, corporate tax partner at
Deloitte, said: ‘Allocation has
been raised as an option, but then dismissed because of its complexity. It can
be an administrative nightmare.’

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