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Tax planning opportunities are about!

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Watch out there is a tax planning opportunity about!

At last, some positive changes as regards the tax treatment of international groups (watch out, a bit of a dirty word these days e.g. Starbucks and Google!) writes Margaret Connolly, Partner and Head of Taxation at Reeves.

Over the years we have heard about significant multi-national companies choosing to leave the UK, for example WPP, Boots and Shire Pharmaceuticals to name but three. In each case the UK Controlled Foreign Company (CFC) regime was a prime motivating factor for the decision to depart. The UK Government has taken on board these concerns and has responded with a highly focussed replacement CFC regime which now targets the artificial diversion of profits from the UK while seeking not to impede genuine commercial transactions. It appears to be working because WPP have announced their intention to return to the UK and indeed Prudential have abandoned plans to relocate to Asia.

Where there are genuinely UK controlled financial structures in place, with effect for accounting periods beginning on or after 1 January 2013 they will have enhanced tax efficiency. This has been brought in by what is called the Finance Company Partial exemption (FCPE) which is a new element of the CFC regime applicable to some group treasury companies. In essence, it means that to the extent that a group treasury company is located within the UK, genuine income received by it will only be taxed at an effective rate that should reach 5.25% by April 2014.

This new opportunity is likely to be of particular interest to large international groups where the UK entities are used as genuine financing companies and are advancing loans to overseas group companies. Up until this year they will have been suffering full UK corporation tax in respect of interest income. In a world in which tax avoidance is a very politically charged topic and we are about to see a General Anti-Abuse Rule (GAAR), this is a structure that is explicitly sanctioned by statute and does not involve any artificial arrangements.

However, in the current febrile climate, it remains to be seen if playing by the rules set down by parliament will be enough to protect a group from public opprobrium!

Should you wish to know more, please do not hesitate to contact Margaret Connolly at Reeves on 0207 382 1820 or email