The Chancellor of the Exchequer said in today’s Budget that, following consultation, the controlled foreign company (CFC) rules will be replaced in Finance Bill 2012. The Chartered Institute of Taxation (CIOT) looks forward to seeing the detail of the final proposals for CFC reform when the Finance Bill is published next week.
The CIOT has previously commended the Government on significant changes it has made to the proposals as a result of consultation responses. The revised Gateway test included in draft legislation published on 29 February 2012 was an enormous improvement on what had previously been published.
Ian Menzies-Conacher, Chairman of the CIOT’s International Taxes sub-committee, commented:
“Each iteration of the proposals and draft legislation has been an improvement on the last. In December we welcomed the revised approach of “all out, unless brought in”, the introduction of a gateway and the flexibility provided by allowing groups to choose which exemption to rely on in order to exempt their subsidiaries, rather than these applying in a prescribed order.
“Although the current draft legislation is still not an easy read for a corporate audience, we believe the revised Gateway test will work in practice. However, it is clear that, in order for this to be the case, taxpayers will have to rely heavily on guidance. With this in mind we urge HM Revenue & Customs (HMRC) to turn its attention to guidance as soon as possible in order to make it clear as to what many of the key aspects of the test will mean in practice.
“We also hope to see some changes in the Finance Bill to areas of the reforms which did not work so well in the December draft legislation, such as the Excluded Territories Exemption.”
Notes to Editors
- In the Budget the Chancellor confirmed that the existing CFC regime will be replaced in Finance Bill 2012. Discussions about CFC reform started in 2007 and have been a central piece of the ‘Corporate Road Map’ first published by the Government in autumn 2010.
- The new rules will be effective for CFCs with accounting periods beginning on or after 1 January 2013.
21 March 2012