Taxation of foreign profits

Reforms to the taxation of foreign profits are at the top of the Government's agenda but to date they have been unable to present a package of measures which has the broad support of businesses.

The PBR is unlikely to include major changes to the taxation of dividends, interest relief and the controlled foreign companies (CFC) regime as the Treasury stated in the summer that they would only introduce a foreign dividend exemption as part of a package of measures.

However, it is possible the Government will provide updates on the work of the new forum which was set up to stem the tide of UK-headquartered companies transferring their head offices to lower tax regimes, such as Ireland and Luxembourg. In addition, it is likely they may make relatively uncontroversial changes such as abolishing Treasury consents and replacing them with a reporting system.

The application of CFC anti-avoidance legislation may be extended to all UK companies in an endeavour to create compatibility with EU law, particularly as it was held to be incompatible in the recent Vodafone 2 case.