The measure
The current controlled foreign company (CFC) rules were introduced in 1984 and their reform has been long lobbied for by business. A discussion document was published in January 2010. This puts forward some suggestions for how a new set of rules could be targeted on artificial diversion of UK profit and not seek to tax profits genuinely earned in overseas subsidiaries. Consultation responses are requested by 20 April 2010.
Who will be affected?
The CFC rules apply to overseas subsidiaries of UK companies, so are especially important to UK headed multinational groups.
When?
The Government intends to publish more detailed proposals and draft legislation later in 2010 for further consultation and introduction in Finance Bill 2011.
Our view
This reform has been under discussion for several years and is a key element of the UK's international tax framework. The current rules have been criticised for being uncompetitive and not reflecting modern business practice, so reform in this area is welcome. However, the discussion document only sets forward some very high level approaches to the possible design of a new system and therefore the key will be the next stage of detailed design consultation later this year.
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