Companies move back in, but lightning won’t strike twice

21 September 2012. Published by Adam Craggs, Partner

Against the backdrop of the huge success of the 2012 Olympics, HMRC have received some encouraging news that the extensive reforms introduced to the taxation of the foreign profits of companies over the last five years is starting to bear fruit.

The changes

As readers will be aware, the previous government published a discussion document on the taxation of the foreign profits of companies in June 2007, which triggered a lengthy consultation and legislation process, which culminated in changes introduced in the Finance Act 2012 (“FA 2012″). The legislation enshrines in the statute book the government’s aims for a new controlled foreign company (“CFC”) tax regime, the key aims of which are:

  • to tax profits artificially diverted from the UK
  • to exempt foreign profits where there is no artificial diversion of UK profits; and
  • not to tax profits arising from genuine economic activities undertaken outside the UK.

FA 2012 provides, therefore, that a CFC charge will arise only if a foreign company is controlled from the UK, none of a number of entity level exemptions apply and the CFC has chargeable profits as defined by a “gateway” which identifies any profits, if any, that are artificially diverted from the UK and which, therefore, pass through the gateway and become subject to the CFC charge.

Back to Blighty

As reported in the national press (see the Daily Telegraph 21 July 2012), between ten and fifteen major corporations are now looking at relocating back to Britain following changes to the CFC rules. The Daily Telegraph reported that WPP, the world’s biggest advertising group, has already committed to moving its company headquarters back to London from Dublin and that up to fifteen other major companies were considering following suit.

Unsurprisingly, HM Treasury have made much of this good news and the Daily Telegraph article quotes a Treasury spokesman as saying:

“At the Budget this year, we cut corporation tax by an extra percentage point to 24% and by 2014 it will be 225, putting the UK within sight of a 205 business tax rate, helping us move closer to our goal of creating a tax system more competitive for business than that of any other major economy in the world.”


Whilst the biggest corporates celebrate and move back to UK, high net worth individuals (and indeed ordinary taxpayers) and their advisers continue to groan under the weight of a vast and complicated tax system. Clearly, attracting major corporates back to the UK is a laudable aim but there is a danger that this will create a perception amongst the general tax-paying population that the large corporates are, once more, being favoured. The feelings of those outside the “inner circle” of top UK corporates is, perhaps, nicely expressed by the Lightening Man himself, Usain Bolt, who, as the BBC News Today has reported (14 August 2012), has spoken of why tax laws are stopping him coming to run in Britain. The BBC reports:

“Glyn Bunting, a partner at Deloitte, explained that was due to athletes having to pay tax in the UK on a proportion of their sponsorship and endorsement earnings.

He said Bolt was invited to an athletics event with a £100,000 fee, but his management worked out that by the time they had allocated his sponsorship and endorsement income to the UK, “his tax liability in the UK would exceed his appearance fee”.

It seems that even the world’s fastest athlete cannot keep up with our tax rates!

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