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Draft Finance Bill 2012 - Implications for Businesses

UK

The UK Government has committed to confirming the majority of Finance Bill measures 3 months before enactment; the 2012 measures were announced on 6 December 2011 and the main areas impacting business include Corporation Tax, Indirect Tax and Tax Avoidance. Taxand UK takes a look at the main points of the draft bill and considers how these may affect multinationals with UK interests.

The draft Finance Bill confirms that legislation will be enacted to repeal the current CFC legislation and replace it with a new CFC regime which is likely to be effective for accounting periods beginning on or after the date of Royal Assent subject to further consultation. The draft legislation does not however complete the picture with more draft law to be made public in January 2012. The proposals represent a significant departure from some of the proposals that were put forward in the previous consultation document. Most notably the territorial business exemptions proposed in June were considered to be too narrowly drawn and are now replaced by mechanical safe harbours which if met will mean that profits of a foreign subsidiary are excluded from the regime.

The key components of the new regime will be as follows:

  • A number of exemptions from the CFC rules which will apply to a CFC's income in its entirety
  • An exclusion for the business profits of CFCs unless those profits meet certain gateway conditions which broadly means that the exclusion applies provided that those profits have not been artificially diverted from the UK
  • "Safe harbours" for the gateway conditions covering general commercial business, incidental finance income and some sector specific rules
  • The Government has reaffirmed their intention to introduce a Finance Company Exemption which would see UK taxpayers able to fund their overseas activities whilst enjoying an effective tax rate of 5.75% in respect of financing income

Taxand UK examines the Draft Finance Bill with a look at other key topics such as Patent Box, Real Estate and Research & Development (PDF)

Your Taxand contact for further queries is:
David Pert
T. +44 207 715 5208
E. dpert@alvarezandmarsal.com

Taxand's Take

According to the Impact Assessment accompanying the draft legislation, the measures are expected to cost the Exchequer over £2 billion over the first four years following enactment which should in theory at least be good news for the corporate taxpayer. However, the proposals include a number of new complex concepts that taxpayers and their advisers will have to come to terms with. For example applying The Gateway (details of which are set out on the following pages) will require increased economic analysis of overseas business activities and the application of OECD principles concerning profit attribution.

Taxand's Take Author