Treasury to launch consultation into taxation of foreign profits

GEORGE Osborne will today launch a consultation on the much-maligned rules that govern the taxation of foreign profits, which have been blamed for the departure of several high-profile multinationals in recent years.

The Treasury is expected to propose a more “territorial” approach to the so-called controlled foreign companies (CFC) rules, which would restrict the Revenue’s right to impose tax on profits earned in low-tax jurisdictions.

An aide to the chancellor said he wanted to prove he was serious about his pledge to make Britain the most competitive corporate tax regime in the G20 group of industrialised nations.

The Treasury must now perform a delicate balancing act, and reform the rules without foregoing significant revenues. In the past, Osborne has lowered headline rates by scrapping reliefs and allowances, a method that aides say he is keen to use again.
But some firms are worried that they will get higher tax bills as a result of the reforms.

One option under consideration is to abolish CFC rules but in turn limit deduction of interest costs in respect of foreign profits – a compromise that would risk alienating overseas investors.