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Financial Times: TREASURY MAKES PRE-EMPTIVE STRIKE AGAINST BIG COMPANIES PLANNING TO MOVE FROM UK

By Vanessa Houlder
Published: April 8 2006 03:00 | Last updated: April 8 2006 03:00
Large companies considering leaving the UK for lower tax jurisdictions face a new obstacle as the result of the closure of a tax-avoidance loophole in yesterday's finance bill, writes Vanessa Houlder.
Advisers said the move was a pre-emptive strike that would make it harder for companies to retain the benefits of being incorporated in the UK after they have emigrated. Anneli Collins, a partner of KPMG, the professional services group, said: “What the Revenue wants is to stop major UK plcs from getting out of the UK.” The move was viewed as a response to a growing restlessness on the part of some large companies that believe the UK is losing its competitive edge. They argue that the UK's appeal is being eroded by the growing complexity and uncertainty of the tax regime, the clampdown on tax avoidance and a lowering of tax rates in other parts of Europe.
The measure appears to be aimed at companies that are incorporated in the UK but are based elsewhere for tax purposes. This unusual corporate structure has been adopted by a small number of international companies, including Shell, the oil group, in order to ensure eligibility for membership of the FTSE 100, which is assumed to require UK incorporation.
The new rules will stop companies with this unusual structure from escaping the impact of anti-avoidance laws known as the controlled foreign company rules, which impose tax on income earned in tax havens and low-tax countries. Until now, companies have been able to get round the CFC rules by acquiring “shell” companies that were exempt from the rules.
The details of the finance bill are likely to have come as a relief for this group because it made clear that the clampdown was unlikely to be retrospective. The Budget announcement of the new provisions had contained no details about the circumstances in which they would come into force, leading to speculation that Shell and others could face additional tax bills of hundreds of millions of pounds.
The measures appear designed to stop any more companies from going down the route of acquiring CFC-exempt companies without causing damage to companies that have already done so. Advisers said that imposing a retrospective penalty on companies that had already used this route would have been viewed as draconian because, for various reasons, they were not avoiding tax that they had paid before their UK incorporation. But advisers raised concerns that the exact wording of the measures would lead to uncertainty for these companies.

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