UK Given Tax Warning By US Business Group

In the letter, which was issued as a response to Mr Darling's "Taxation of Foreign Profits of Companies: A Discussion Document", issued in June of this year, fears were expressed with regard to two major areas of taxation: the direct effect on US business, and concerns for international tax policy.

One of the main concerns expressed by the NFTC was that "there will not be a strong rule which would exempt from taxation payments of dividends, interest, rents and royalties outside the UK between related companies which have been made out of active business profits".

Commenting on the effect that the proposed reforms could have on intellectual property, the letter continued: "This new approach is a serious departure from customary international practice. If the rule were to be implemented in this form, no US corporation would ever hold or develop IP in or below a UK holding corporation."

Issues regarding intra-treasury group operations, non-UK intra-group payments, intra-group treasury operations and post-acquisition restructuring were also drawn to the Chancellor's attention.

With regard to the issue of international tax policy concerns, the letter went on to state that: "We are also concerned that the elements of extra-territorial taxation in the package will only encourage other countries to reject OECD standards." "If a major economy like the UK, with a traditional leadership role in tax policy, were to move away from international norms, the potential for retaliatory actions that could adversely affect both UK and US businesses would be a real, current danger."

Commenting on the situation in a Financial Times report, PwC's John Whiting observed that: “The propositions fail because they increase the administrative burden and they seem to increase the tax burden on business.”

The NFTC letter concluded: "The emerging details of the proposals, as they stand, could be far more harsh than the US rules. That could only have the effect of discouraging the inward investment from the US which historically has been so important to the UK economy."