Insurers say UK taxes may cause exodus

INSURERS yesterday warned they could quit Britain unless the government cuts their tax burden as ministers unveiled plans to crack down on corporate tax evasion and improve the tax regime for firms with overseas operations.

More companies may join the ranks of those who have already decided to move from the UK to financial centres with more favourable tax regimes, such as the Netherlands, Ireland and Hong Kong, the Association of British Insurers (ABI) said.

Insurers pay the fourth highest corporation tax of any sector and contribute £8.2bn to the Exchequer, the ABI said. In the last four years, six insurers have left the UK for locations including Bermuda, the Republic of Ireland and the Netherlands, the ABI said.

ABI financial regulation and taxation director Peter Vipond said: “The real danger for UK Plc is insurers deciding to locate away from the UK. This is not just about who offers the lowest tax rate, though that remains an important factor.”

The ABI welcomed plans, announced by the Treasury yesterday, to reform rules relating to controlled foreign companies (CFCs). The proposals, which are subject to consultation, are designed to modernise UK tax law to help firms with international operations business while protecting the UK tax base.

CFC rules are aimed at situations where UK groups move profits into countries with low tax regimes to avoid UK tax. Ministers want the new rules to target “artificial diversion” of UK profit while improving the tax treatment of profits genuinely earned by British companies’ overseas operations.

The ABI’s assistant director of tax, Mark Edwards, said: “If the government fails to bring in these reforms, we expect the UK to lose more insurers. He said: “If ministers get it right, they could retain these businesses and the UK could become an attractive place to move to.”

Tax and accountancy firm PriceWaterhouseCoopers cautiously welcomed the plans, but said they were surrounded by financial and political uncertainty and needed clarification about how they would work.

THE GOVERNMENT yesterday published a discussion document on proposals for reforming the UK tax treatment of foreign profits to recognise globalisation of trade while safeguarding UK tax revenue.

• The Controlled Foreign Company (CFC) rules exist to protect the UK corporation tax base and apply in situations where UK groups move profits into low tax jurisdictions to avoid UK tax.

• Foreign profits reform has been separated into two parts. The first part was introduced in the Finance Act 2009 and included a wide-ranging exemption for foreign dividends repatriated to the UK. Dividend exemption represents a significant change to the taxation of foreign profits for corporate groups and has been welcomed by business.

• The consultation announced yesterday forms the second part and sets out proposals for a new CFC regime. It focuses on the overall shape of the CFC rules, specifically addressing how the two most difficult areas of money and intellectual property might be addressed.

• The discussion document sets out the overarching framework of the new rules and proposals for how monetary assets and intellectual property could be treated.

•The proposals could give tax benefits to companies with overseas treasury arms, which manage cash on behalf of the firms’ overseas operations.

• They may also improve the tax regime for firms with substantive overseas intellectual property holding companies.

• The government aims to publish more detailed proposals and draft legislation for consultation later in 2010 and to legislate in the Finance Bill 2011.