U.K. Seeks to Incorporate Nonresident Companies Into Tax Regime
The U.K. government said it would investigate bringing nonresident companies’ income into the country’s corporation tax regime.
The consultation on the move is expected to begin at Budget 2017 in March, the Treasury said in its Autumn Statement Nov. 23.
“The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules,” the Treasury said.
In its green Autumn Statement book, the government said it “will consult on the case and options for implementing this change.”
Bill Dodwell, head of tax policy at Deloitte, said the moves could impact nonresident landlords as well as other foreign companies with income in the U.K.
Nonresident companies with a trading business in the U.K. currently are subject to U.K. corporation tax, Dodwell said. “However, those without a U.K. trade may be liable to income tax on income from U.K. sources,”
These include U.K. rental income received by nonresident corporate landlords and deduction of income tax at source on payments of interest and royalties.
“The consultation will consider options to apply corporation tax rules, including the new limits on interest deductibility and restrictions on the use of losses to all U.K. income received by foreign companies,” Dodwell said.
“Details have yet to be announced, but there will be questions to deal with around, for example, the future differences in rate between corporation tax, reducing to 17 percent by 1 April 2020, and the basic rate of income tax (currently 20% with no announcements of any changes),” he said.
“One outcome may be that nonresident landlords could be subjected to a lower rate of tax, but with reduced ability to deduct, for example, interest costs or brought-forward losses.”
Expense for Foreign Companies
The move could prove to be an additional expense for foreign companies.
Toby Ryland, a corporate tax partner at accounting firm HW Fisher & Co., said that “one thing is clear: U.K.-based businesses are to be rewarded at the expense of foreign firms.”
“Buried in the detail of the Treasury press release is a provision that will pull all companies with U.K. taxable income into Britain’s corporation tax regime,” he said. “This is likely to include tens of thousands of offshore companies that currently pay minimal U.K. tax, and could see many hit with a substantial capital gains tax bill.
“With U.K. corporation tax set to fall to the lowest level of any major economy in the world, by tightening the rules for foreign firms seeking to use Britain as a tax haven, the Chancellor has given multinationals a stark choice—come to the U.K. for its low corporation tax, but expect to pay the tax on all your U.K. income,” Ryland said.