Delay In UK Foreign Profit Tax Proposals Unwelcome, Say Advisors

by Robert Lee, Tax-News.com, London

14 March 2008

Businesses operating in the UK remain unclear as to the direction of the current consultation on the taxation of foreign profits following the Chancellor’s Budget speech on Wednesday, according to tax advisors PricewaterhouseCoopers.

Commenting on the government's failure to inform businesses on how a recent consultation is shaping its thinking in the area of foreign profit taxation, Peter Cussons, PwC tax partner stated that:

“We continue to be disappointed at the lack of any firm announcement. Although the Red Book announces that a consultative document will be published before summer 2008, businesses remain in the dark as to how things will play out in the meantime."

"While the discussions have been meticulously managed, the lack of detail at this stage must call into question whether the original proposed timetable can be met.”

The government announced that it would consult on the taxation of foreign profits as far back as the 2006 Pre-Budget Report, but waited until June 2007 to publish a joint HM Treasury and HM Revenue and Customs document which kicked-off an 'informal' discussion between government and business.

This document loosely proposed an exemption regime for many foreign dividends, a simplified credit regime, a new Controlled Companies (CC) regime, retention of the UK's interest rules, repeal of the Treasury Consents rules, and additional anti-abuse rules.

However, Cussons believes that a lack of concrete proposals from the government is frustrating business and merely creating more uncertainty at a time of frequent change to the company tax regime.

“With a raft of tax changes on the table for small to large businesses at present, uncertainty over the next steps in the taxation of foreign profits consultation process adds another layer. Originally designed to enhance the UK as internationally competitive, businesses with overseas operations should continue to watch closely as the outcome unfolds," he stated.

A response to the initial discussion document, submitted in September 2007 by PricewaterhouseCoopers, highlighted that the UK’s current cross-border taxation rules were unnecessarily complex, and could be considered anti-competitive with other countries’ tax regimes.

The original timetable set out by HMT suggested bringing new rules into effect early in 2009, but given the magnitude of the changes proposed, and lack of concrete consultation to date, PwC has noted increasing concern that the original timetable may slip.

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