The Treasury's estimate of £300m for the effect of the Inland Revenue's new rules on the use of 'mixer' companies is being widely questioned by tax professionals in the UK. The Treasury says that about 200 companies use such intermediate companies in Holland and some other countries with suitable tax regimes to collect income of various types from overseas subsidiaries and 'mix' it with losses from other sources, eventually remitting a minimised amount of taxable income to the UK.
The Treasury's new rules, which will be spelled out in detail in the Finance Bill, yet to be published, would operate from 1st July 2000. Their effect would be to unbundle the results of the mixer companies, so that UK tax rules would be applied to the underlying profits and losses, which in many circumstances results in a less advantageous tax computation. While it is impossible for anyone to estimate the results of this move accurately, because some companies could employ other options to achieve tax savings, estimates of the damage ranged as high as £8bn to £10bn (by PricewaterhouseCoopers). PwC said that one company alone had estimated the impact at £1bn.
Many FTSE companies have substantial overseas operations, and yesterday's weak performance by the London stock market partly reflected worries over the effect of the Treasury's ruling on earnings. The Treasury said it was doing no more than continue with its long-term prevention of tax-avoidance, but it is not acting in a vacuum: eventually, increasingly foot-loose multinationals have choices to make about where they should be based, and if the UK's tax regime becomes less business-friendly, they may choose to go elsewhere. The Treasury agreed to consult with business prior to implementation of the new rules - it is far from unusual for the British Government to change its mind about controversial or ill-thought-out Budget measures during discussion of the Finance Bill
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