Government outlines plans to reform corporate tax
George Osborne’s autumn statement reveals modernisation of CFC regime and reduction in corporate tax to 24% by 2014
THE GOVERNMENT has revealed its key principles behind plans to reform corporate tax, including lower rates, and a simpler and more stable system.
The corporate tax “roadmap” — revealed earlier this afternoon in chancellor George Osborne’s autumn statement on the UK economy – outlines how the government will reform corporation tax over the next five years. The government hopes that the tax reforms will help to create the most competitive corporate tax regime in the G20 group of developed and developing nations.
Reform of corporate tax will follow five principles: lowering rates while maintaining the tax base (a low tax rate with fewer reliefs and allowance); a stable tax system; aligning the tax system with business practice; avoiding complexity; and maintaining a “level playing field” for taxpayers.
The Chancellor, who in his June Budget announced plans to reduce corporate tax from 28% currently to 24% by 2014, also announced details of plans to reform the controlled foreign company (CFC) tax regime on multinationals’ foreign profits. The CFC regime has been heavily criticised by businesses for being complex and heavy handed.
The government said that there is scope for “significant modernisation” to CFC rules, which was designed more than 25 years ago to prevent companies artificially diverting UK profits to low tax jurisdictions.
Reforms to CRC – to ensure that the tax system will “better reflect the way that businesses now operate in a globalised economy,” the Treasury said in its document on corporate tax reform.
“The current rules can be seen as going further than what is needed to protect the UK tax base; new rules must instead minimise the impact on commercial decisions and not interfere with the efficient management of overseas operations,” The Treasury added.
The Treasury promised to provide businesses with greater certainty on the CFC rules for taxing corporate profits stemming from intellectual property.
The government also said that it will introduce a “simple partial finance company exemption” that will allows groups to manage their overseas financing operations more effectively while protecting UK tax rates.
