Post by Sapphire Capital on Jul 24, 2008 22:33:06 GMT 4
UK government to rethink foreign profits plans
The UK government has put off plans to change the taxation of foreign profits regime. In a letter to the Confederation of British Industry, Jane Kennedy, the financial secretary to the Treasury, wrote that replacing the credit system with an exemption for dividends from overseas subsidiaries in next year's Finance Bill could cost too much.
"Although it remains our objective to introduce a dividend exemption, our estimates show that to do so could impose significant costs on the Exchequer," the minister wrote.
A technical note on the progress of the consultation with taxpayers on the foreign profits regime was published at the same time as the letter. It forecast that, under the present system, the corporate tax paid on foreign dividends would be £300 miliion ($601 million) in the 2012/2013 fiscal year. The note added that while an exemption would mean that taxpayers would not have to plan to avoid tax on dividends, it would encourage them to move profits into low tax jurisidictions. While it estimated that this could cost the government £600 million, it said it could be anything between £200 million and £1.1 billion.
Richard Lambert, the CBI's director-general, sought to reassure the government on losses through shifting of profits and at the same time encouraged it to produce new proposals quickly. "If business can reassure you over the extent of the fiscal risk in the course of the next few months, I hope you will push forward with the minimum delay, and if at all possible in the next Finance Bill," he wrote in a letter responding to Kennedy.
The Treasury has also postponed plans to cut the amount of interest on company loans that could be deducted from a business' tax bill and to replace the controlled foreign companies rules with a controlled companies regime that would have sought to tax UK taxpayers that received passive income from overseas units. These proposals were particularly unpopular with companies, such as in the pharmaceutical and entertainment industries, whose wealth is based on the value of their intellectual property.
"It is clear that elements of the changes to Controlled Foreign Companies rules and interest restrictions that were set out in last year's discussion document could cause problems for business, specifically the proposals relating to the CFC rules that would have impacted upon the tax treatment of intellectual property and affected certain sectors disproportionately," Kennedy's letter said.
Kennedy said further discussions with taxpayers on the shape of a reformed foreign profits system could also include talks on the competitiveness of the tax regime for intellectual property in the UK.
After the first meeting of the Business-Government Forum on Tax and Globalisation in June, the CBI and the Hundred Group of Finance Directors called on the government to provide an update on the foreign profits consultation.
source: ITR
The UK government has put off plans to change the taxation of foreign profits regime. In a letter to the Confederation of British Industry, Jane Kennedy, the financial secretary to the Treasury, wrote that replacing the credit system with an exemption for dividends from overseas subsidiaries in next year's Finance Bill could cost too much.
"Although it remains our objective to introduce a dividend exemption, our estimates show that to do so could impose significant costs on the Exchequer," the minister wrote.
A technical note on the progress of the consultation with taxpayers on the foreign profits regime was published at the same time as the letter. It forecast that, under the present system, the corporate tax paid on foreign dividends would be £300 miliion ($601 million) in the 2012/2013 fiscal year. The note added that while an exemption would mean that taxpayers would not have to plan to avoid tax on dividends, it would encourage them to move profits into low tax jurisidictions. While it estimated that this could cost the government £600 million, it said it could be anything between £200 million and £1.1 billion.
Richard Lambert, the CBI's director-general, sought to reassure the government on losses through shifting of profits and at the same time encouraged it to produce new proposals quickly. "If business can reassure you over the extent of the fiscal risk in the course of the next few months, I hope you will push forward with the minimum delay, and if at all possible in the next Finance Bill," he wrote in a letter responding to Kennedy.
The Treasury has also postponed plans to cut the amount of interest on company loans that could be deducted from a business' tax bill and to replace the controlled foreign companies rules with a controlled companies regime that would have sought to tax UK taxpayers that received passive income from overseas units. These proposals were particularly unpopular with companies, such as in the pharmaceutical and entertainment industries, whose wealth is based on the value of their intellectual property.
"It is clear that elements of the changes to Controlled Foreign Companies rules and interest restrictions that were set out in last year's discussion document could cause problems for business, specifically the proposals relating to the CFC rules that would have impacted upon the tax treatment of intellectual property and affected certain sectors disproportionately," Kennedy's letter said.
Kennedy said further discussions with taxpayers on the shape of a reformed foreign profits system could also include talks on the competitiveness of the tax regime for intellectual property in the UK.
After the first meeting of the Business-Government Forum on Tax and Globalisation in June, the CBI and the Hundred Group of Finance Directors called on the government to provide an update on the foreign profits consultation.
source: ITR