The Government today published proposals for reforming the
UK’s Controlled Foreign Company (CFC) rules, as part of its
ambition to create the most competitive tax system in the G20.
This marks the next step towards introducing a modernised CFC
regime in 2012 that better reflects the way that businesses
operate in a globalised economy, and include the Government’s
Budget 2011 commitment to introduce a partial exemption for
finance companies that will normally result in a 5.75% tax charge
on those overseas profits by 2014.
These proposals are designed to strike the right balance between
improving the competitiveness of the UK corporate tax system and
protecting the UK tax base against avoidance by:
• targeting and imposing a CFC charge on artificially diverted UK
profits, so that UK activity and profits are fairly taxed;
• exempting foreign profits where there is no artificial
diversion of UK profits; and
• not taxing profits arising from genuine economic activities
undertaken offshore.
David Gauke, Exchequer Secretary to the Treasury, said:
“The Government is clear that a key factor in achieving a
sustainable recovery must be private sector growth. Multinational
business plays an important role in this, but as the market-place
has become increasingly globalised, the UK has lost tax
competitiveness. These changes to the CFC regime, alongside our
substantial programme of corporate tax reforms, will help us to
rectify this and ensure that the corporate tax regime is once
again an asset for the UK. Our proposals follow discussions with
businesses and tax professionals and we welcome further input from
them and other interested parties in response to the
consultation.”
Notes for Editors
1. The Government’s consultation on reforming the UK’s CFC rules
runs from today until 22 September 2011. It can be found at:
http://www.hm-treasury.gov.uk/consult_controlled_foreign_companies_reform.htm
2. Globalisation has meant that the world’s markets have become
more open. As a result, companies increasingly operate across
national borders and the ownership of UK businesses has become
more internationally diverse.
3. The current CFC rules were introduced in 1984, and were
intended for a corporate tax regime that operated on a worldwide
basis; significant change is needed.
4. The Government recognises the majority of CFCs are held
for genuine commercial reasons. The new regime will be targeted at
situations that pose a high risk of being used to artificially
divert UK profits, and will ensure that, if a CFC charge arises,
it will be applied to the proportion of overseas profits that have
been artificially diverted from the UK.
5. To account for the diversity and complexity of modern business
operations, and given the inherent complexities of the risks that
a CFC regime is designed to protect against, there are limitations
on how simple the new regime can be. However, the Government’s aim
is to make the rules as straightforward as possible to apply and
to reduce compliance burdens where possible.
6. The Government wants to design a stable CFC regime and avoid,
where possible, the need to change the rules on an ongoing basis
to address new avoidance risks.
7. The reform of the UK’s CFC rules is part of the Government’s
wider corporate tax reforms, including the reductions in the main
rate of corporation tax. These proposals build on the CFC interim
improvements that are being introduced in Finance Bill 2011.
Non-media enquiries should be addressed to the Treasury
Correspondence and Enquiry Unit on
020 7270 4558 or by e-mail
to public.enquiries@hm-treasury.gov.uk
This Press Release and other Treasury publications are available
on the HM Treasury website
hm-treasury.gov.uk For the latest
information from HM Treasury you can subscribe to our RSS feeds or
email service.
Media enquiries should be addressed to the Treasury Press Office
on 020 7270 5238.
Contacts:
HM Treasury Press Office (Media)
Phone: 020 7270 5238
NDS.HMT@coi.gsi.gov.uk