New multinational tax plans seek "certainty"

NEW PLANS for the UK’s multinational tax regime have been released by the Treasury, in an attempt to provide “certainty” for businesses.

The plans were announced by chancellor George Osborne during this afternoon’s Autumn statement.

Uncertainty around the corporate tax regime has seen companies relocate from the UK, and the government wants as much certainty as is possible at this stage for new controlled foreign comapnies (CFC) rules to be legislated for in the Finance Bill 2012.

Under the consultation, the government intends to introduce an entity-based system that will target a CFC charge on the proportion of overseas profits that have been “artficially diverted” from the UK.

Exemptions will be designed to minimise compliance burdens and focus attention on higher risk entities. Specific rules will be designed for at least the banking, insurance and property industries.

An exemption will be created that allows groups to manage overseas financing operations more efficiently, while protecting the UK tax base. The exemption will work by looking at the finance company’s debt-to-equity ratio and applying a CFC charge to the extent that it has excess equity.

Companies had suggested to the Treasury an effective rate of less than 10%.

The government proposes a debt/equity ratio of 1:2, so two-thirds of overseas finance income will be exempt from a CFC tax. At a 26% corporation tax this will equate to a 9% tax rate on overseas finance income.

“This is a pragmatic way of protecting the UK tax base while exempting a significant proportion of overseas finance income,” according to the consultation document.

As an interim step the 2011 Finance Bill will contain an exemption for “foreign-to-foreign” group transaction that do not pose a risk to the UK tax base.

Saffrey Champness partner Tim Gregory said it was welcome that the statement had brought “no suprises” in terms of changes to the UK tax system.

“A predictable and competitive fiscal system is crucial if we are to see sustained economic recovery and growth as it plays a key part in attracting international businesses and wealth creators to the UK,” said Gregory.