Stemming the flow of multi-national firms leaving the UK

Margaret Connolly, Reeves+Neylan accountants Partner
Margaret Connolly, Reeves+Neylan accountants Partner

Margaret Connolly, partner and head of taxtation at Reeves, welcomes some overdue changes to the tax treatment of international groups

Over the years, we have heard about significant multi-national companies choosing to leave the UK, for example WPP, Boots and Shire Pharmaceuticals.

In each case, the UK Controlled Foreign Company (CFC) regime was a prime motivating factor for the decision.

The Government has taken on board these concerns and responded with a focussed replacement CFC regime which now targets the artificial diversion of profits from the UK while seeking not to impede genuine commercial transactions.

WPP has since announced its intention to return, and Prudential has abandoned plans to relocate to Asia.

Where there are genuinely UK controlled financial structures in place, with effect from accounting periods beginning on or after January 1, they will have enhanced tax efficiency.

This has been brought in by what is called the Finance Company Partial exemption (FCPE) which is a new element of the CFC regime applicable to some group treasury companies.

In essence, it means that to the extent that a group treasury company is located within the UK, genuine income received by it will only be taxed at an effective rate that should reach 5.25% by April 2014.

This new opportunity is likely to be of particular interest to large international groups where the UK entities are used as genuine financing companies and advancing loans to overseas group companies.

Before 2013, they suffered full UK corporation tax in respect of interest income.

In a world in which tax avoidance is a politically charged topic – and we are about to see a General Anti-Abuse Rule (GAAR) – this is a structure that is explicitly sanctioned by statute and does not involve any artificial arrangements.

However, in the current febrile climate, it remains to be seen if playing by the rules set down by Parliament will be enough to protect a group from public opprobrium.

  • Contact Margaret on 0207 382 1820 or
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