UK Treasury To Delay Foreign Profit Tax Plans

The UK Treasury has reportedly decided to postpone making a decision on the structure of the new foreign profits tax regime, amid protests from multinationals that the UK's corporate tax regime is becoming unbearably complex.

Citing a source close to the Treasury, the Times reported on 2nd June that Chancellor Alistair Darling is now very unlikely to announce the foreign profit tax reform proposals at the end of July as originally planned, in order to allow the government to consult further on the plans.

“It’s obviously now not going to happen under the original timeframe. The consultation period is certainly now going to be delayed," the source told the paper.

The Treasury had envisaged that legislation changing the foreign profit tax regime would be pushed through in 2009, but the delay means that any changes would be unlikely to be legislated until 2010, by which time Prime Minister Gordon Brown could be fighting a general election campaign.

The government initially announced that it would consult on the taxation of foreign profits as far back as the 2006 Pre-Budget Report, but waited until June 2007 to publish a joint HM Treasury and HM Revenue & Customs document which kicked-off an 'informal' discussion between government and business.

This document loosely proposed an exemption regime for many foreign dividends, a simplified credit regime, a new Controlled Companies (CC) regime, retention of the UK's interest rules, repeal of the Treasury Consents rules, and additional anti-abuse rules.

However, a succession of UK-based multinationals have been warning recently about the increasing complexity of the UK tax system, and some contend that the proposals as they stand may simply add to corporate tax compliance burden.

Indeed, some companies, such as Shire and WPP, have voted with their feet by announcing plans to relocate for tax purposes from the UK to Ireland.