Watson Buckle Blog
CFC Reform
Since January, the Government has been examining options to reform the UK’s CFC rules and launched three consultations that have since been carried out.
The Treasury originally said that the CFC Reforms were designed “to strike the right balance between improving the competitiveness of the UK corporate tax system and protecting the UK tax base against avoidance.”
The Government’s intentions appeared to be good – they want to create an attractive regime which would see proposals being competitive for business whilst protecting the UK tax base.
The reform has been a long time coming and what people will now want to know is whether what has been produced will work in practice.
The changes are expected to deliver some benefits, particularly for offshore financing activities. Big businesses are expected to react mostly positively, although there will be some reservations.
It is, however, expected that the compliance burdens will be as profound as they are now.
The reforms will also see a variety of exemptions being offered and that will mean a lot of work will need to be carried out to analyse the CFC activities within a group.
New inbound investors may also find the new regime to be a disincentive due to the complexities they will be met with. For example, there is a missed opportunity with the lack of a simple exemption for genuine EU activities, which will go against the UK in the choice of a location for a European holding company.
So much for Britain being ‘open for business’.
The most attractive part of the new system is the finance company proposals, which over the years will lead to significant restructuring of offshore financing arrangements.
The system, however, is unlikely to be seen as a strong initiative to attract new investment to the UK, which our Chancellor seemed determined to do.
John Kinsella
Tax Partner
