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Corporate tax reform: proposed foreign branch opt-in exemption

HM Treasury/HMRC published their proposals for an opt-in foreign branch exemption as part of their overall CFC/IP/interest deduction in the Corporate Tax Reform consultative document.

The proposal is now for trading but not investment companies nor the non-treaty branches of small companies to be able to irrevocably opt in to exempt the profits and losses of that company’s branches whether existing or future. Contrary to the July proposals which envisaged either an opt-out from exemption or a combined exemption and loss relief but with clawback the current provisions regarding taxation with credit relief for double taxation would therefore be retained as the ‘main’ regime.

The exemption would extend to foreign branch gains as well as trading income and to investment income effectively connected with a foreign trading branch. Exempt profits will be defined with respect to individual tax treaties or to the OECD...

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