Government to speed up reform of overseas tax
Businesses may have to rethink their overseas expansion plans after the Treasury signalled it would accelerate plans to reform the way that it taxes the profits earned by companies' foreign branches.
Stephen Timms, the financial secretary to the Treasury, told accountants in London last week that the Government would clarify the taxation of overseas profits from branches and legislate in next year's Finance Bill.
Branches are permanent offices in overseas markets but are not structured in the same way as formal subsidiaries. They are used by a wide range of trading businesses as well as banks and insurance companies.
Ian Young, international tax manager at the Institute of Chartered Accountants of England and Wales, welcomed the Treasury's decision to tackle branch taxation more quickly.
"It's very sensible," he said. "We need to have a coherent tax system that they don't keep chopping and changing and modifying, which is what they seem to do at the moment. What businesses like is having some certainty."
The Association of British Insurers agreed. Kerrie Kelly, director general of the ABI, said: "A more modern regime will help global businesses remain headquartered in the UK as well as attract those domiciled abroad."
One impact could be that setting up an overseas presence becomes more expensive, Mr Young warned, as losses generated by an overseas office as it sets up could no longer be offset against UK profits.
"If we say you do something abroad we will not tax you, arguably you will not get relief if you make losses," he said. "It might discourage people as when you set up a business you have lots of expenses and not a lot of profits, or it could encourage you to do it in a different way, perhaps through a local agent."
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