Exemption for foreign dividends to be introduced

A package of reforms to the taxation of corporate foreign profits, including the introduction of an exemption for foreign dividends will be in Finance Bill 2009.

Baker Tilly analysis

The announcement that a package of measures is to be introduced as soon as Spring 2009 is welcome and unexpected. There had been suggestions that the changes would not be made until 2010. The exemption will be most welcome as significant structuring is often necessary to mitigate possible double taxation and will encourage the repatriation of foreign profits.

In detail

The taxation of foreign profits has been the subject of an extensive consultation exercise over the past three years. The main issue is the relatively high level of UK corporation tax rates and the complexity of the anti-avoidance rules. One measure that has been pressed for and now been conceded, from April 2009, is the exemption of foreign dividends. These dividends will typically be paid out of profits already subjected to foreign tax.

A number of anti-avoidance measures were proposed to prevent abuse and these will follow further consultation. The changes are likely to make the UK a more attractive location and may go a long way to stemming the flow of UK based multinationals relocating their head office outside the UK.