Impact of Draft Finance Bill 2012
The Finance Bill 2012 Draft Clauses, published on 6 December 2011, contain few surprises. But they do provide important developments on some key topics, including controlled foreign company (CFC) reform, the new Patent Box regime, and important changes to the taxation of non-domiciles. the main question is, how do these changes affect businesses in the UK?
Chris Morgan, Head of Tax Policy and Partner at KPMG says: “As well as the continued downward reduction in the main rate of corporation tax to 24% for 2013, one of the main measures is the conclusion of the drawn out changes to the controlled foreign company (CFC) regime. The draft CFC legislation is expected to pass into law in June/July 2012, and will apply to all accounting periods starting after that date. It will have the effect, broadly, of taxing overseas profits, to the extent they are considered to be ‘artificially diverted’ from the UK. There is also provision for a new highly preferential rate of tax on profits earned by an overseas finance company – provided certain criteria are met. The reform package reflects a fundamental, and welcome, shift in the Government’s approach to how foreign profits are taxed.
“Alongside the CFC reforms, the Draft Clauses included the new Patent Box regime, whereby from April 2013 (on a phased in basis) profits derived from UK or EU patents will be taxed at a preferential 10% rate. While the regime is not as broad as some competing regimes such as the Dutch innovation box, it is nevertheless a positive move aimed at making the UK a more attractive holding and development location for Intellectual Property.
“The main personal tax measures are also connected with improving the business environment. The changes to the remittance rules for UK resident but non-UK domiciled individuals (non doms) are a positive development which will help encourage non dom entrepreneurs to invest into qualifying UK trading businesses by removing the current barrier of a charge to tax. However, the introduction of a higher £50,000 remittance basis charge for non doms who have been in the UK for 12 or more years is unlikely to raise significant revenue for the UK tax authorities. It is perhaps more of a symbolic gesture to demonstrate that non doms are contributing their fair share of tax.”
David Gauke, Exchequer Secretary to the Treasury, said: “This is the second year we have published draft tax legislation, and the Government’s more open, predictable and simple approach to tax policy making is working well. By confirming intended tax changes ahead of publication, we are giving greater certainty and stability to taxpayers and businesses than they have had in the past.
“Furthermore, the consultation responses we are publishing today demonstrate the Government’s commitment to listening to the views of those affected by changes to the tax system.”
The improvement of the business environment in the UK is the main aim of the Finance Bill 2012 draft clauses. The major new proposals on CFCs, together with the introduction of a new patent box regime with effect from 1 April 2013 and earlier changes on the taxation of dividends and branches, have resulted in a fundamental change in international businesses’ view of the UK as a good place to locate.
A few years ago the talk was of companies leaving the UK and establishing their headquarters in other jurisdictions; now some of those companies are reconsidering their decisions, a shift that is clearly reflected in KPMGs recent authoritative report on UK Tax Competitiveness.