Companies are facing substantial shifts in the way they are taxed under
Treasury proposals released in a consultation today.
In its long-awaited consultation document on the taxation of interest,
foreign dividends and controlled-foreign companies, the Treasury proposed easing
the rules on dividends, but tighten the regulations for CFCs and interest
In the consultation, a response to
European Court of Justice
challenges to the UK tax system, the Treasury proposed that all
multi-national business should be exempt from paying tax on foreign dividends.
Small and medium-sized business, however, will still have to comply with the
old credit system for taxing foreign dividends.
But SMEs will benefit from a light regulatory regime for controlled foreign
companies, whereas multi-nationals will face a much heavier CFC compliance
With regards to interest relief, it is proposed that authorities will compare
a company’s global debt-to-equity ratio with its UK ratio. If the UK company has
higher debt levels then it will only receive interest relief up to a level that
matches its global debt ratio.
‘Overall the consultation is to be welcomed, but as always the devil will be
in the detail,’ said PricewaterhouseCoopers international tax partner Peter
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