The Government?s chosen strategy of ?making the corporate tax regime an asset? is driven by the realization that a large element of the UK?s strength comes from the number of companies headquartered in the UK.
This is significantly more than would be expected in a country of a similar size and economy, but without the UK?s history.
The draft Finance Bill 2012 legislation, unveiled on 6 December 2011, clearly supports that chosen strategy, delivering welcome news in many key areas.
Over the summer of 2011, HM Treasury and HMRC entered into a series of consultations, both formal and informal, in relation to the tax policies announced at Budget 2011.
Some of these consultations were addressed in the Autumn Statement, but the majority of responses to consultations were published on 6 December alongside draft legislation to be included in Finance Bill 2012 on these and other matters.
Key areas addressed in the documents include:
The full reform of the controlled foreign company rules
The proposals change the legislation from a ?guilty until proven innocent? approach to an ?innocent until proven guilty? approach.
This new approach will be significantly simpler to operate and will be more competitive.
Although we are still waiting for some details, of particular note is the long-anticipated new overseas group finance company regime, which taxes profits at 25% of the UK rate (so giving a rate of 5.75% in 2014), rather than the full rate.
The case for full exemption for finance profits in certain limited circumstances is still being considered.
There is also a gateway test designed to exempt most overseas trading companies from the CFC rules without needing to consider the detailed tests.
Legislation on the patent box
The draft legislation contains a set of rules that are sufficient to allow companies to begin the process of evaluating the potential benefits of the regime.
The new proposals are likely to make the regime more coherent and sensible, with key sources of potential complexity being rethought and reduced.
A statutory residence test (SRT)
HM Treasury has confirmed that implementation of the SRT will be delayed until 6 April 2013.
The reason for the delay is to give more time to deal with a number of detailed issues that have emerged from the consultation.
This will mean that the current subjective tests remain in place for at least another year.
The tax treatment of non-UK domiciled individuals
The Government has confirmed that the ?Remittance Basis Charge? ? the amount paid by non-UK domiciled individuals to access a preferential tax regime ? will rise from ?30,000 to ?50,000 once an individual has been resident in the UK for 12 years.
Legislation has been published that would allow non-UK domiciled individuals to make investments into UK businesses without triggering a tax charge on the remittance of funds into the UK.
However, we believe that a number of issues may limit the attractiveness of this relief.
Tax simplification
The Government has decided not to proceed with the abolition of a number of reliefs identified by the Office of Tax Simplification.
In particular at a time when the construction industry is struggling, the retention of land remediation relief will be a much-needed boost.
The Government has also confirmed that ?for exceptional reasons? it will not abolish the late night taxis relief.
High-risk tax avoidance
Over the summer, the Government consulted on proposals to deter the use of certain tax-avoidance schemes by listing them in regulations and attaching certain statutory consequences to their use.
In consultation, the proportionality and effectiveness of the measure was questioned, and the
Government has decided not to include it in Finance Bill 2012.
Corporate tax rates
The draft clauses confirm the intention to reduce the mainstream rate of corporation tax to 24% from 1 April 2013.
On a general note, it is good to note that a number of the measures announced have evolved from those proposed in the consultation process.
In a number of cases, the views of business and advisors have been considered and the draft legislation developed accordingly or even put on hold.
Contact
- Chris Sanger, +44 (0)20 7951 0150, csanger@uk.ey.co
This article was first published in the Ernst & Young?Global Tax Policy and Controversy Briefing?which can be accessed using the link below:
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