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Consultation ‘opens up government’s thinking’ on controlled foreign companies

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Tax professionals have given a qualified welcome to detailed proposals for reform of the UK’s controlled foreign companies regime.

Reform is needed to improve the UK’s tax competitiveness while ensuring that the UK tax base is adequately protected, according to the joint HM Treasury/HMRC consultation document published yesterday

‘We want to attract business investment from all over the world to the UK and reverse the recent trend of businesses leaving the UK amid concerns over tax competitiveness,’ said David Gauke, the Exchequer Secretary to the Treasury, in a foreword to the 110-page consultation.

‘This document is more detailed than many comparable consultations as this is a very challenging area and we want to work with interested parties to get this reform right,’ he added.

‘In common with other similar countries, the UK needs CFC rules to maintain sustainable corporate tax revenues by protecting against artificial diversion of profits to low tax jurisdictions, but there is scope for significant modernisation,’ the Treasury said.

The government published proposals last November for new CFC rules to be introduced in Finance Bill 2012, and introduced interim improvements in Finance Bill 2011. It now aims to publish draft legislation in Autumn 2011.

‘This is cards on the table time for the government,’ said Barry Murphy, tax partner at PwC.

‘The reforms have been much talked about and for the first time we have a chance to assess whether the detailed proposals measure up to government ambitions. It’s a big document, but it’s good that it really opens up the thinking behind the proposals. These are fundamentally important changes and a full debate is needed to ensure that the reforms are effective and practical for business.’

Comments are invited by 22 September.