A competitive corporate tax system is not just about rates, the Treasury said as it launched five consultations.
A new 100-page document, 'Corporate Tax Reform: delivering a more competitive system', is designed to provide certainty to business over the Government's plans and support the recovery by ‘giving business the confidence needed to invest in the UK’.
A Corporate Tax Road Map sets out the direction of reform – to ‘prioritise rate reductions, which will benefit all businesses, over introducing or broadening reliefs’. See www.lexisurl.com/9HcWT.
A Corporate Tax Road Map liaison committee will provide a ‘strategic overview’ of the consultation. The Business Forum on Tax and Competitiveness established in July will consult with large businesses on the UK’s tax competitiveness.
To be more competitive, the UK’s corporate tax system should ‘focus more on profits from UK activity in determining the tax base rather than attributing the worldwide income of a group to the UK’, the Treasury said. But the Government does not intend to pursue significant changes to the UK’s ‘competitive regime’ for interest.
The new consultations deal with:
Controlled foreign companies: new rules to be introduced in Finance Bill 2012 will introduce ‘a mainly entity based system’, bringing into charge only the proportion of overseas profits that have been artificially diverted from the UK’.
Controlled foreign companies: interim improvements proposed for Finance Bill 2011. The main change is ‘to exempt a CFC which carries on a range of “foreign to foreign” activities involving transactions wholly or partly with other group companies provided there is little or no risk of erosion of the UK tax base.’
Foreign branches: an opt-in exemption from corporation tax for the profits of foreign branches of UK companies.
Patent Box: a 10% corporate tax rate for profits arising from patents.
R&D tax credits: consultation on the support that R&D tax credits provide for innovation, and the proposals of the Dyson Review. The Government reaffirmed its ‘commitment to retain and build on the existing R&D tax credit scheme’.
The Treasury will hold open events on all areas of corporate tax reform on 13 December and 11 January.
The CIOT welcomed the proposals. Adrian Rudd, Chairman of its Corporate Tax Sub-Committee, said the CFC rules had become more and more complex to operate since their introduction in the 1980s.
‘CFCs remain a major administrative burden on multinational corporations, often to no real impact so far as tax yield is concerned,’ he said. ‘Obviously the very large businesses are vital to the UK economy and pay a significant proportion of the corporate tax yield, but Government should remember smaller firms too.’
‘There does seem a genuine attempt on the part of Government to provide a general environment and tax system that will allow business to flourish and to improve the public finances,’ said the ICAEW Tax Faculty.
It was clear, the Faculty said, that the present favourable regime for interest would be maintained. The interest regime is ‘one the UK’s biggest plus points internationally’, said the Institute of Directors.
The CBI said there were ‘encouraging signs of a more competitive UK corporate tax regime’, and PwC welcomed the Government’s intention to target CFC rules on ‘high risk’ areas.
Ernst & Young noted that multinationals outside the pharmaceutical industry would be disappointed that the 10% rate of tax will apply to patents only, rather than to a wider range of intellectual property such as royalties and brands, despite pressure from business.
‘Whilst the UK retains some important non-tax reasons to be based here, the UK’s tax incentives have fallen behind those offered by other European and Asian countries,’ said Bill Dodwell, Head of Tax Policy at Deloitte.
A competitive corporate tax system is not just about rates, the Treasury said as it launched five consultations.
A new 100-page document, 'Corporate Tax Reform: delivering a more competitive system', is designed to provide certainty to business over the Government's plans and support the recovery by ‘giving business the confidence needed to invest in the UK’.
A Corporate Tax Road Map sets out the direction of reform – to ‘prioritise rate reductions, which will benefit all businesses, over introducing or broadening reliefs’. See www.lexisurl.com/9HcWT.
A Corporate Tax Road Map liaison committee will provide a ‘strategic overview’ of the consultation. The Business Forum on Tax and Competitiveness established in July will consult with large businesses on the UK’s tax competitiveness.
To be more competitive, the UK’s corporate tax system should ‘focus more on profits from UK activity in determining the tax base rather than attributing the worldwide income of a group to the UK’, the Treasury said. But the Government does not intend to pursue significant changes to the UK’s ‘competitive regime’ for interest.
The new consultations deal with:
Controlled foreign companies: new rules to be introduced in Finance Bill 2012 will introduce ‘a mainly entity based system’, bringing into charge only the proportion of overseas profits that have been artificially diverted from the UK’.
Controlled foreign companies: interim improvements proposed for Finance Bill 2011. The main change is ‘to exempt a CFC which carries on a range of “foreign to foreign” activities involving transactions wholly or partly with other group companies provided there is little or no risk of erosion of the UK tax base.’
Foreign branches: an opt-in exemption from corporation tax for the profits of foreign branches of UK companies.
Patent Box: a 10% corporate tax rate for profits arising from patents.
R&D tax credits: consultation on the support that R&D tax credits provide for innovation, and the proposals of the Dyson Review. The Government reaffirmed its ‘commitment to retain and build on the existing R&D tax credit scheme’.
The Treasury will hold open events on all areas of corporate tax reform on 13 December and 11 January.
The CIOT welcomed the proposals. Adrian Rudd, Chairman of its Corporate Tax Sub-Committee, said the CFC rules had become more and more complex to operate since their introduction in the 1980s.
‘CFCs remain a major administrative burden on multinational corporations, often to no real impact so far as tax yield is concerned,’ he said. ‘Obviously the very large businesses are vital to the UK economy and pay a significant proportion of the corporate tax yield, but Government should remember smaller firms too.’
‘There does seem a genuine attempt on the part of Government to provide a general environment and tax system that will allow business to flourish and to improve the public finances,’ said the ICAEW Tax Faculty.
It was clear, the Faculty said, that the present favourable regime for interest would be maintained. The interest regime is ‘one the UK’s biggest plus points internationally’, said the Institute of Directors.
The CBI said there were ‘encouraging signs of a more competitive UK corporate tax regime’, and PwC welcomed the Government’s intention to target CFC rules on ‘high risk’ areas.
Ernst & Young noted that multinationals outside the pharmaceutical industry would be disappointed that the 10% rate of tax will apply to patents only, rather than to a wider range of intellectual property such as royalties and brands, despite pressure from business.
‘Whilst the UK retains some important non-tax reasons to be based here, the UK’s tax incentives have fallen behind those offered by other European and Asian countries,’ said Bill Dodwell, Head of Tax Policy at Deloitte.
