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UK Treasury Ready To Improve International Tax Regime

by Robert Lee,, London

22 June 2007

Paymaster General, Dawn Primarolo has announced the publication of a joint HM Treasury and HM Revenue and Customs discussion document on reforming the taxation of foreign profits of companies.

The document follows a commitment made in the 2007 Budget to consult on this issue in the context of maintaining the overall competitiveness of the UK.

One of the issues which business representatives identified as needing reform was the tax treatment of foreign profits, particularly the taxation of foreign dividends and the UK's Controlled Foreign Companies (CFC) regime.

In the 2006 Pre-Budget Report, the government announced that it would consult in 2007 on the taxation of foreign profits. Then, in Budget 20007 the government announced that it would issue a consultation document later in the spring, which would consider in particular the taxation of foreign dividends and the CFC rules.

The government has held informal discussions with representatives of multinational businesses, in which there was mutual recognition that the current system for taxing foreign profits may no longer be as suitable as it once was for either business or government.

The government is proposing a package of structural reforms, intended to modernise and create a more straightforward regime for taxing foreign profits. The aim is to achieve a balanced, broadly revenue-neutral package that meets the needs of both business and government, the Treasury said.

The discussion document issued on Thursday suggests the following package of reforms:

  • The introduction of an exemption regime for many foreign dividends for large and medium business;
  • A simplified credit regime for foreign dividends of small business;
  • A new Controlled Companies (CC) regime, established on an income basis rather than the 'all-or-nothing' entity basis of the current Controlled Foreign Companies (CFC) regime and applying, in part, to the UK subsidiaries of UK based groups, to prevent artificial location of profits;
  • Retention of the UK's interest rules, subject only to stronger anti-abuse provisions (which will apply generally, and not just in the foreign profits arena);
  • Repeal of the Treasury Consents rules, which require UK companies to obtain consent from the Treasury before certain transactions involving foreign subsidiaries are carried out, with the introduction of an information-reporting requirement.
  • Consideration, with business, of what additional anti-abuse rules may be needed to ensure that dividend exemption is not abused.

Further discussions between government and business are expected over the summer, which will lead to more concrete proposals.

"This discussion document underlines the Government's commitment to provide the best possible environment for business, and to maintain a modern, efficient and competitive business tax regime," suggested Primarolo.

"I am particularly pleased to be able to propose the repeal of the Treasury Consents rules as part of a balanced package. The discussions will build on the open and constructive dialogue we have had with business over the last year, and I look forward to that dialogue continuing over the coming months," she concluded.

A comprehensive report in our Intelligence Report series looking at offshore and onshore corporate structures and their tax implications is available in the Lowtax Library at and a description of the report can be seen at

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