Publications search
Comment: The proposed branch profit exemption will depart from strict territoriality. Will this breed complexity?
At Tuesday’s Revenue/Treasury open event, HMT/HMRC confirmed that the proposed exemption for branch profits will not slavishly follow a territoriality principle.
- Profits of overseas branches of airlines and shipping companies will be excluded from the regime.
- HMT/HMRC are considering excluding capital gains attributable to foreign branches from the exemption.
- HMT/HMRC are proposing some form of relief for losses of foreign branches which are available for carry forward in the UK when the exemption comes into force.
- HMRC are considering incorporating aspects of the CFC regime to help protect against the exemption being used to divert profit from the UK to low tax jurisdictions.
Very few tax regimes are purely territorial. So we should not be surprised that there will be exceptions to the basic territoriality rule. The exceptions, which are being discussed, may be based on good reasons either in principle or practicality and some (such as loss relief) may even benefit the taxpayer. But the concern is that any exceptions breed complexity and risk depriving the new regime of any coherent principle which is the basis of a clear and simpler tax law. It is important that exceptions to the principle are kept to a minimum.
Follow all our
latest tax updates on Twitter
09 September 2010
