Draft Finance Bill 2012: CFC rules turned on their head to drive UK competitiveness

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“The Government has also shown a refreshing flexibility of thought in its approach to protecting the UK tax base. The Controlled Foreign Companies (CFC) legislation has changed from a ‘guilty until proven innocent’ approach to ‘innocent until proven guilty’. Although this will have the same coverage and protect the tax base in a similar manner, this new approach will be significantly simpler to operate.

“The draft legislation has been under consultation for over five years. However, it’s been worth the wait. Government does appear to have listened to many of the key concerns raised during the extensive consultation process.

“The proposals mark an important step towards realising the Coalition’s ambition of making the UK one of the most competitive corporate tax regimes in the G20 by making the UK a more attractive headquarter location. It should help to attract further inward investment and stop any more groups leaving - it may even attract some back!

“Of particular note is the long anticipated new overseas group finance company regime which taxes profits at 25% of the UK rate, rather than the full rate. In addition, 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 detailed tests.”

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