Foreign profits proposals - Mazars - United Kingdom
Foreign profits proposals
The Government has issued draft legislation under the ‘Foreign Profits’ proposals which, if enacted, will result in sweeping reforms to corporation tax. However, despite the title, the reforms also affect wholly domestic UK groups.
Overall the proposed changes are likely to increase costs for companies, not only in tax terms but also in terms of the additional compliance burden placed upon them. The main areas of reform are:
- Distribution exemption – the proposal is for dividends received from all sources (and not just UK companies) to be exempt from UK tax, provided they meet certain conditions. This largely only applies to ‘large’ and ‘medium’ groups. Timing of dividend payments will be important.
- Worldwide debt cap – the purported aim is to restrict ‘excessive’ financing deductions in the UK part of a multinational group, but its implications are far wider reaching. For example it may create stranded losses, even in wholly UK groups as well as restricting tax deductions, thus increasing the effective tax rate of the group. These proposals only apply to ‘large’ groups.
- Controlled foreign companies (‘CFC’) - the proposals here are to abolish two valuable exemptions from the CFC rules, which can charge UK tax on the profits of foreign companies. These will particularly impact on any groups with tiered structures overseas and may result in unexpected CFC charges.
- Extended anti-avoidance on loans and derivatives for ‘unallowable purposes’ where there is a tax avoidance purpose.
As yet, we do not know when the legislation will be enacted, although it could be as early as 1 April 2009. In the meantime representations can be made until 3 March 2009. However, as things stand, the proposals will have significant tax consequences for many UK groups and there is a need to plan ahead wherever possible, to minimise any downsides.
To obtain a fuller analysis of the foreign profits proposals please contact Rosemary Blundell at rosemary.blundell@mazars.co.uk.
Print this page
National contact
Rosemary Blundell
Director National Tax
+44 (0)115 943 5357
Contact us
- Copyright 2010 - Mazars - United Kingdom
- RSS
- Site map
- Legal and privacy
- Accessibility
- Copyright 2010 - Mazars - United Kingdom
