UK and International Tax news

Finance Bill 2011

Tuesday 14th December 2010

HMRC have recently published draft clauses for the 2011 Finance Bill, together with explanatory notes for consultation over the next three months before the draft Finance Bill is due to be published on 31 March 2011.  This breaks with traditional practice where most of the new draft legislation would only have been available after the Budget.

Of paricular note are the draft clauses relating to CFC interim improvements, the simplification of corporate capital gains/loss rules in relation to change of ownership, degrouping charges, and value shifting, OECD transfer pricing guidelines, and the taxation of overseas branches.

Proposed changes to the CFC rules include:

• an exemption for certain intra group activities where there is little connection with the UK;
• an exemption for CFCs whose main business is the exploitation of intellectual property (IP) where both the IP and the CFC have minimal connection with the UK;
• a statutory exemption which runs for three years for foreign subsidiaries that, as a consequence of an acquisition or a reorganisation come within the scope of the CFC regime for the first time;
• amendment of the current exemption for CFCs with a low level of profits, increasing the limit for large groups from £50,000 to £200,000 profits per annum, and replacing the need to calculate chargeable tax profits with an accounts based test; and
• extension of the transitional rules for holding companies until July 2012.

The proposed changes are to have effect for accounting periods beginning on or after 1 April 2011, other than the extension of the transitional rules, which is deemed always to have had effect.

The draft clauses affecting the taxation of overseas branches provide for an optional exemption from corporation tax for profits arising from foreign permanent establishments of a UK company. If profits are exempt from tax under these provisions, losses will be excluded to the extent that they arise from foreign permanent establishments. Profits and losses will be treated in this way only when the company has made an election for these rules to apply to it. Once a company has made this election, foreign permanent establishment profits will be exempt and losses will be cancelled from the commencement of the next accounting period, subject to a transitional rule.

The draft 2011 Bill is also to bring into UK legislation the updated 2010 OECD guidelines on transfer pricing, and extend the power to make future changes to the definition by secondary legislation to include replacement of the existing version of the OECD Transfer Pricing Guidelines.  The changes are to apply, for corporation tax purposes, for accounting periods beginning on or after 1 April 2011, and, for income tax purposes, for the tax year 2011-12 and subsequent tax years.

If you would like further information on the Finance Bill 2011, please contact Keith Rushen on 0044 (0)20 7486 2378.

Contact Us