The Treasury has published its proposals for reforming the way UK-based companies’ foreign profits are taxed.
Under a shake-up of the Controlled Foreign Company rules, announced today, companies will no longer be taxed on profits arising from economic activities genuinely undertaken offshore. The proposed regime also exempts foreign profits where UK profits have not been artificially diverted.
But in a bid to ensure that companies will not use the new rules as a tax avoidance ruse, a CFC charge will be imposed on artificially diverted UK profits so that UK activity and profits are fairly taxed.
In addition, the paper introduced a partial exemption for finance companies that will normally result in a 5.75% tax charge on those overseas profits by 2014.
Treasury Exchequer Secretary David Gauke said: “Multinational business plays an important role in this, but as the market-place has become increasingly globalised, the UK has lost tax competitiveness. These changes to the CFC regime, alongside our substantial programme of corporate tax reforms, will help us to rectify this and ensure that the corporate tax regime is once again an asset for the UK. Our proposals follow discussions with businesses and tax professionals and we welcome further input from them and other interested parties in response to the consultation.”
The ABI has lobbied the government over its concerns that the UK’s current treatment of companies’ foreign profits is encouraging insurers to redomicile.
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