TaxCorporate TaxWide-ranging business tax reforms on the cards

Wide-ranging business tax reforms on the cards

Treasury to change tax on interest relief, inter-company dividends and controlled-companies

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
relief.

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
burden.

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
Cussons.

Further reading:

Brown to offer foreign subsidiary tax breaks

Is the taxman chasing shadows?

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