Foreign profits
Moving away from recession-based measures, business has been awaiting
the Foreign Profits measures. This package has been debated since
2006 and covers the way in which UK companies are taxed on profits
earned overseas by their foreign subsidiaries and associates. The
package contains one favourable measure - an exemption from UK tax for
foreign dividends - and two tax-raising measures, being limitations on
the amount of interest expense which may be used to reduce UK taxable
profits.
HMRC released before Easter an update on the controversial debt cap
measures, which showed that it has tried hard to deal with the many
concerns of business. Our view remains that the package should go ahead,
but the debt cap measures should be left out to allow for more work. We
believe that there are sufficient Exchequer protections in the package,
so that tax would not be put at risk and the dividend exemption would
encourage UK groups to bring back funds to the UK. We expect that the
Chancellor will announce the Government's decision on the package on
Budget Day.
As ever, there will be a number of less significant measures, many of
which have been the subject of consultation over the last 6-12 months.
