While we welcome the government’s continuing intention to simplify the existing CFC regime and its willingness to consult with the tax profession and industry, the date by which this process is due to be completed has been put back another year, from 2011 to 2012.
 
This means that it will be five years from the launch of the reform process in 2007 until completion in 2012. That is simply too long, and business has been lost from the UK in the intervening period. While interim measures to provide some relief in the meantime are better than nothing, they are no substitute for comprehensive reform and it is to be hoped that there will be no further delays in this already long overdue process.

It remains to be seen how these interim improvements (and the full CFC reform in 2012) will comply with existing ECJ rulings on the UK’s CFC rules. Despite the stated intention that the new regime will be EU compliant, it is clear that there is reluctance on the part of the UK authorities to accept and incorporate these judgements into the new rules. Clarification by the UK authorities of when they will consider groups’ arrangements to be 'wholly artificial' and thus within the UK CFC regime, will then become a crucial aspect of any consultation on improvements to the CFC rules. The government must bear this in mind, along with other areas of legislative reform such as the taxation of branch profits, to prevent their intentions to simplify the CFC rules from being derailed.