Joy Svasti-Salee

Head of International Tax

E joy.svasti-salee@gtuk.com

The reforms to taxation of foreign profits will be the most significant revision of corporation tax for several years.   The detailed Consultation Document, now expected before the summer, will deal with the following key areas:

• Dividend exemption:  dividend exemption will boost the competitiveness of the UK tax system and reduce administrative burdens, by enabling groups to repatriate more funds to the UK tax-free.   But there are concerns that the detailed rules may introduce too much complexity, particularly if different regimes apply for portfolio and non-portfolio dividends, non-qualifying distributions and smaller companies.
  
  
• Interest relief:  the UK's rules for allowing interest costs are relatively generous under the current regime.   If any new restrictions are too widely drawn, and in particular if they seek to over-ride the "arm's length principle", then UK groups may suffer higher tax costs and competitiveness will suffer.
  
  
• Anti-avoidance:  the proposed changes to the "unallowable purpose" rules are widely drawn and could create uncertainty in commercial situations. It is important that legislation is clear and not reliant on Revenue interpretation.
  
  
• Controlled companies:  the UK's current rules have been challenged in the European Courts and it is clear that change is needed.  However, the initial proposals were very wide-ranging and would potentially have charged UK tax on  almost all worldwide profits from exploiting intangibles.  The admin burdens will also be excessive if transactions entirely within the UK are included in the scope of the rules.  We hope that the final regime will be more workable and will only apply where there is clear tax avoidance involving the diversion of profits from the UK.

Personal taxes