Budget 2009 - Taxation of foreign profits
UK companies that are members of groups may see their tax position affected by a number of changes announced in this year’s Budget. The new measures are:
- Dividends and other distributions received from foreign companies will largely be exempt from corporation tax (CT) in the same way as distributions from UK companies currently are. (This will also apply in many cases to UK companies that are not members of groups but receive dividends or other distributions).
- Tax deductions for finance expenses (largely interest) incurred by UK members of a group will be subject to a cap, unless all group members meet the definition of a small or medium sized company.
- Changes to the controlled foreign company (CFC) regime for companies with interests in overseas companies.
- The rules that require companies to obtain approval from HM Treasury before undertaking certain transactions involving subsidiaries not resident in the UK will be repealed and replaced by a need to file a post-transaction report – and then only for foreign investment transactions of £100 million or more.
The changes will take effect from different dates:
- The changes to the taxation of distributions will apply to dividends and other distributions received on or after 1 July 2009.
- The debt cap applies to finance expense payable in accounting periods beginning on or after 1 January 2010.
- The changes to the CFC regime have effect for accounting periods starting on or after 1 July 2009, though provision will be made for companies with accounting periods that straddle this date. Transitional rules will apply in some circumstances, until 1 July 2011.
- The new reporting requirement will apply to transactions undertaken on or after 1 July 2009.
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David Mansell is a Corporate Tax Partner at Mercer & Hole.
Date: 22nd April, 2009
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