Chancellor Alistair Darling is considering axe-ing unpopular plans to reform the taxation of foreign profits that threatened to drive businesses away to tax havens outside the UK.
Since the Treasury set out proposals last year to clamp down on tax avoidance, including introducing UK taxes on foreign profits and passive income, several companies have already relocated overseas, including Shire, the UK’s third-largest pharmaceuticals group, which CityA.M. revealed earlier this year had decided to move its headquarters to Ireland for tax purposes.
Many more firms hinted that they would follow suit if no U-turn was announced by the Treasury.
The Treasury is expected to revoke its proposals early this week in a reply to a letter from the CBI employers’ association, announcing plans to continue with the system of exempting foreign profits from tax.
The move comes after Darling has already been forced to amend major sections of his Budget, including proposals on income tax, capital gains tax and the recent turnaround on fuel duty.
Last week, the Chancellor announced that the proposed 2p increase in fuel duty planned for this autumn would be postponed for at least six months due to the rising price of petrol at the pumps.
Yet though the Conservatives are likely to condemn the Chancellor for his weakness in bowing to pressure from business, this latest decision will be hailed by many as a sign that the consultation process is making progress and as proof that resolving business concerns is high on the Government’s agenda.