The government has given in to pressures to moderate its Budget proposals regarding the taxation of multinational companies.
The government will still restrict the use of mixer companies for tax purposes, but has extended the transition period announced in the Budget and made other changes.
The aim is to make the UK an attractive place in which businesses can compete in the global market. However the changes in double taxation relief can adversely affect many companies. The CBI has been at the forefront of making protests at the details of the proposals.
The changes now announced are:
- the start date for the restriction of mixer companies has been put back from 1 July 2000 to 31 March 2001. The original date was intended to allow groups a time to pay dividends to the UK under the old rules. However some groups with complex multi-tiered structures face complications such as minority interests in foreign subsidiaries and foreign law restrictions on paying dividends;
- a provision in the Finance Bill Sch 30 para 5 on the interaction of double taxation agreements and relief from foreign tax under UK law will now only apply to agreements made after 20 March 2000;
- a provision introduced by Sch 30 para 10 limited the amount of relief for underlying tax allowed to a UK company according to dividends paid between companies in the ownership chain below the UK company will not apply where the company paying the dividend and the company receiving it are resident in the same country, except that the provision will still apply in such circumstances if it is leading to an abuse of the double taxation relief regime;
- a provision introduced by Sch 30 para 12 clarifying how underlying tax is to be allowed where a group of companies is taxed as a single entity in another country will apply wherever the group is situated in the ownership chain below the UK company.
These changes were announced at the same time that the government said it would consult further on:
- rollover relief for gains on the disposal of substantial shareholdings held by companies; and
- introducing tax relief for the costs of purchasing goodwill and other tangibles.
The CBI welcomed all these changes and the chance for further consultation.
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