Government publishes proposals on Controlled Foreign Companies
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30 June 2011 - HM Treasury
The Government today published
proposals for reforming the UK’s Controlled Foreign Company (CFC)
rules, as part of its ambition to create the most competitive tax
system in the G20.
This marks the next step towards
introducing a modernised CFC regime in 2012 that better reflects the
way that businesses operate in a globalised economy, and include the
Government’s Budget 2011 commitment to introduce a partial exemption
for finance companies that will normally result in a 5.75% tax charge
on those overseas profits by 2014.
These proposals are designed to strike
the right balance between improving the competitiveness of the UK
corporate tax system and protecting the UK tax base against avoidance
- targeting and imposing a CFC charge on artificially
p UK profits, so that UK activity and profits are fairly taxed;
- exempting foreign profits where there is no artificial
p of UK profits; and
- not taxing profits arising from genuine economic activities
David Gauke, Exchequer Secretary to
the Treasury, said:
“The Government is clear that a
key factor in achieving a sustainable recovery must be private sector
growth. Multinational business plays an important role in
this, but as the market-place has become increasingly globalised, the
UK has lost tax competitiveness. These changes to the CFC
regime, alongside our substantial programme of corporate tax reforms,
will help us to rectify this and ensure that the corporate tax regime
is once again an asset for the UK. Our proposals follow
discussions with businesses and tax professionals and we welcome
further input from them and other interested parties in response to the
1. The Government’s
consultation on Controlled
Foreign Company (CFC) reform runs from today until 22
2. Globalisation has meant that the world’s markets have
become more open. As a result, companies increasingly operate across
national borders and the ownership of UK businesses has become more
current CFC rules were introduced in 1984, and were intended for a
corporate tax regime that operated on a worldwide basis; significant
change is needed.
Government recognises the majority of CFCs are held for genuine
commercial reasons. The new regime will be targeted at situations that
pose a high risk of being used to artificially p UK profits, and
will ensure that, if a CFC charge arises, it will be applied to the
proportion of overseas profits that have been artificially p
from the UK.
account for the p and complexity of modern business operations,
and given the inherent complexities of the risks that a CFC regime is
designed to protect against, there are limitations on how simple the
new regime can be. However, the Government’s aim is to make
the rules as straightforward as possible to apply and to reduce
compliance burdens where possible.
Government wants to design a stable CFC regime and avoid, where
possible, the need to change the rules on an ongoing basis to address
new avoidance risks.
reform of the UK’s CFC rules is part of the Government’s wider
corporate tax reforms, including the reductions in the main rate of
corporation tax. These proposals build on the CFC interim improvements
that are being introduced in Finance Bill 2011.
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Article Published/Sorted/Amended on Scopulus 2011-07-03 13:07:55 in Tax Articles