Global firms welcome relief on foreign earnings

THE government has announced measures intended to lure multinationals back to the UK and has promised a review on the taxation of profits made outside the country.

The Chancellor said during his Budget announcement yesterday: “I want Britain to be the place international businesses go to, not the place they leave.” He claimed that the measure will “give us a far more attractive system than France, America or Germany”.

The headline change to Controlled Foreign Company (CFC) tax rules means that company units set up abroad in order to finance foreign ventures will see taxes on their earnings decrease to a minimal rate of 5.75 per cent by 2014, instead of being taxed as part of a firm’s overall profits.

This is even lower than the previously announced rate of eight per cent, a change that PwC’s Claire Evans called “really exciting”.

The government has also promised to review the taxation of foreign branches of UK companies so that they are taxed like subsidiaries of multinational groups, which have more generous tax terms under current laws.

A full review of CFC rules is due to be published in May, with the Treasury currently consulting on the measures. The key issue is how the UK taxes profits that companies make abroad. While the Budget sharply reduced taxes on earnings made for financing foreign investment, it has yet to declare its policy on general earnings made overseas.

The consultation is part of an effort to tempt back companies like WPP, Google, Wolsely, UBM and Shire, which have all moved their European headquarters into more tax-friendly domiciles.