The UK is again becoming a more desirable place for multi-nationals to base their holding companies, according to a Birmingham-based expert.
Kari Campbell, international tax partner with BTG Tax, part of the Begbies Traynor group, said it came in the wake of recent Government cuts in corporation tax.
It follows controversy under the previous administration when a trickle of leading Stock Market quoted plcs moved out citing tax reasons.
“Due to recent legislative changes, the UK is becoming a more attractive holding company location,” noted Ms Campbell. “The main hook is the intention to reduce the rate of corporation tax from the current rate of 26 per cent to 23 per cent by 2014.
“This rate is still significantly higher than more common holding structure locations, such as Ireland (12.5 per cent), but the UK also has a dividend exemption, corporate capital gains exemption, branch exemption and no withholding tax on dividend distributions.
“This is certainly encouraging companies to look at the UK as an impressive holding company location.”
She said the intended favourable tax treatment for income from patents – to be taxed at only ten per cent from April 2013 – would also produce a greater pull to UK shores.
“In addition to all this the UK has the largest tax treaty network in the world – covering over 100 countries – reducing or eliminating withholding taxes for most jurisdictions.
“A major disadvantage with the UK regime has been the strict Controlled Foreign Company (CFC) rules. For instance, the traditional route to the EU from the US has been through a UK holding company. However, the restrictive tax rules on CFCs have made businesses think twice, making it difficult for UK groups to circulate capital around their foreign subsidiaries without creating tax charges.
”However, the Government is committed to making a full reform of the CFC rules, though this will not take place until 2012.
“One of the proposals is that it will be possible to enjoy a low tax rate of 5.75 per cent on intra-group funding without having to engage in complex structuring. This is an extremely attractive rate of tax and allows the multinational company to benefit from a low tax regime and only pay a small amount of UK top-up tax.
“Furthermore, there are proposals to exempt profits from foreign intellectual property to ensure that they are not brought within the UK tax net. This would allow a multinational group to hold intellectual property in a low tax regime without incurring a UK tax charge.
“These two proposals are particularly generous and have been set up to put the UK firmly back on the map in terms of an attractive holding company location.
“These changes are welcome. It is clear to see that the Government is making a concerted effort to ensure that the UK is a competitive tax regime for inward investment and it is even rumoured that some large companies that have previously left the UK are considering coming back.”
However, further simplification was required so multinationals could more easily assess whether they were caught by the CFC rules or not.