| No clarity yet on foreign profits |
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| Thursday, 13 March 2008 | |
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The direction of the current consultation on the taxation of foreign profits is still not clear.
Peter Cussons, tax partner, PricewaterhouseCoopers LLP, said he continued to be disappointed at the lack of any firm announcement in the Budget speech. He explained that although the Red Book announced that a consultative document would be published before summer 2008, businesses remained in the dark as to how things would play out in the meantime. Cussons warned that while the discussions had been meticulously managed, the lack of detail at this stage must call into question whether the original proposed timetable can be met. “With a raft of tax changes on the table for small to large businesses at present, uncertainty over the next steps in the taxation of foreign profits consultation process adds another layer. Originally designed to enhance the UK as internationally competitive, businesses with overseas operations should continue to watch closely as the outcome unfolds,” Cussons concluded. An informal ‘discussion style’ consultation between HM Treasury, business and other stakeholders on the proposed changes to the taxation of foreign profits began in June 2007, following a series of earlier meetings. A formal consultation document setting out detailed proposals, however, has not yet been published. A response to the initial discussion document, submitted in September 2007, by PricewaterhouseCoopers highlighted that the UK’s current cross-border taxation rules were unnecessarily complex, and could be considered anti-competitive with other countries’ tax regimes. The original timetable set out by the Treasury suggested bringing new rules into effect early in 2009, but given the magnitude of the changes proposed, and lack of a consultative document to date, there is an increasing concern that the original timetable may slip. New rules around financial structures Chris Morgan, head of International Corporate Tax at KPMG in the UK, said that despite all the talk of how competitive the UK remains, the detail unveiled in today’s budget suggests precisely the opposite. He pointed out that within the 270 pages of 107 budget notices published on Wednesday are details of new rules around financing structures and the way in which UK headquartered companies’ foreign profits are taxed. Many companies will face a hike in the effective tax rate they pay on their worldwide profits as a result. He argues that even in comparison to the US, a country with a high headline corporate tax rate, the measures arguably make the UK less competitive as a location for the world’s largest corporations. “Despite the changes there was no formal update to the over-arching reform process to the way in which the UK taxes profits earned overseas. It is more than a year since the process began and business has been waiting for a full consultation document. Some may take today’s news as a signal that the consultation document is unlikely to contain any good news for them and decide that they will not bother to wait for it,” Morgan concluded. Related articles
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