Detailed proposals for reform of the controlled foreign companies regime do not reflect the government’s ‘high level aims’, according to the Chartered Institute of Taxation.
Detailed proposals for reform of the controlled foreign companies regime do not reflect the government’s ‘high level aims’, according to the Chartered Institute of Taxation.
The tax body was encouraged by a ‘continuing willingness to listen’, but said there was ‘still a significant way to go’.
‘In certain areas there is no significant change from the approach adopted by the current rules, which is disappointing, and in others the proposals are unnecessarily complex and do not reflect modern business practice, meaning it will not be easy for businesses to filter their foreign subsidiaries for CFC purposes.’
The key to a successful reform was to provide workable exemptions enabling groups to self assess easily, the CIOT said. It was imperative to implement reform in Finance Bill 2012 but the new rules should be viewed as a work in progress.
The CFC legislation should not be used where exit taxes and transfer pricing provide ‘adequate and substantial remedies’ against artificial diversion of profit. The excluded countries exemption (ECE) and territorial business exemptions (TBEs) should be drawn ‘as simply and widely as possible’.
The CIOT added: ‘We would like to see a system where businesses can quickly conclude that their subsidiaries are outside the rules, because they are not engaged in any diversion of profits from the UK, without having to consider whether they “enjoy” a lower level of taxation (unless that exemption can be properly reformed to make it a useful gateway).
‘However, the ECE and TBEs are currently too narrowly drawn to achieve this. For this reason, the general purpose exemption (GPE) is likely to be relied upon by more subsidiaries than is perhaps intended. As the GPE, almost inevitably, involves more subjective judgements in its application, this may add to the number of CFC enquiries faced by both business and HMRC.’
The CIOT argued that the GPE itself was ‘currently extremely complicated’. The tax body offered to work with the government on a principles-based approach to target only structures that artificially divert profits from the UK.
Detailed proposals for reform of the controlled foreign companies regime do not reflect the government’s ‘high level aims’, according to the Chartered Institute of Taxation.
Detailed proposals for reform of the controlled foreign companies regime do not reflect the government’s ‘high level aims’, according to the Chartered Institute of Taxation.
The tax body was encouraged by a ‘continuing willingness to listen’, but said there was ‘still a significant way to go’.
‘In certain areas there is no significant change from the approach adopted by the current rules, which is disappointing, and in others the proposals are unnecessarily complex and do not reflect modern business practice, meaning it will not be easy for businesses to filter their foreign subsidiaries for CFC purposes.’
The key to a successful reform was to provide workable exemptions enabling groups to self assess easily, the CIOT said. It was imperative to implement reform in Finance Bill 2012 but the new rules should be viewed as a work in progress.
The CFC legislation should not be used where exit taxes and transfer pricing provide ‘adequate and substantial remedies’ against artificial diversion of profit. The excluded countries exemption (ECE) and territorial business exemptions (TBEs) should be drawn ‘as simply and widely as possible’.
The CIOT added: ‘We would like to see a system where businesses can quickly conclude that their subsidiaries are outside the rules, because they are not engaged in any diversion of profits from the UK, without having to consider whether they “enjoy” a lower level of taxation (unless that exemption can be properly reformed to make it a useful gateway).
‘However, the ECE and TBEs are currently too narrowly drawn to achieve this. For this reason, the general purpose exemption (GPE) is likely to be relied upon by more subsidiaries than is perhaps intended. As the GPE, almost inevitably, involves more subjective judgements in its application, this may add to the number of CFC enquiries faced by both business and HMRC.’
The CIOT argued that the GPE itself was ‘currently extremely complicated’. The tax body offered to work with the government on a principles-based approach to target only structures that artificially divert profits from the UK.
