Letter to:
The Right Hon Gordon Brown, MP, PC
The Chancellor of the Exchequer
HM Treasury Treasury Chambers
Dear Chancellor
THE BUDGET - DTR
I am writing on behalf of The Association of Corporate Treasurers to express our serious concern at the proposed changes to the tax legislation regarding double taxation relief contained in this year's budget.
When the current system of double tax relief was created, in the early 1950s, the UK was predominantly a manufacturing country which exported much of its output. Few UK companies had substantial overseas investments and the profits which they generated overseas were small in comparison with those generated by their main manufacturing operation in the UK.
Over the years since its creation the UK's double tax relief system has been modified by the practice of using offshore mixer companies. In this respect the UK has maintained its international competitiveness in changing times. As was acknowledged in the Consultative Document published by the Revenue on the subject last year, the use of offshore mixing offers capital export neutrality, which is not offered by the basic UK system. The changes in this year's Budget, by eliminating offshore mixing, have taken the essential elements of the system back to its original structure as designed in the 1950s. The UK's position in the world has changed since then and it is clearly essential for the future economic health of the country that it has a tax system which reflects this change.
It is of vital importance to the UK's global commercial position that it should remain "a good place to do business in and a good place to do business from". Having multinational companies based in the UK is essential for a robust UK economy and to enable the country to retain a high quality, well educated workforce. It must therefore have a tax system which does not drive them away.
The changes to double tax relief in this year's Budget mean that the UK now has the least attractive tax environment for the parent company of a multinational group of any of the G7 countries. Most continental European countries have an exemption system which means that no further tax is charged at the parent company level when dividends are remitted, and even the US, which is not usually renowned for its taxpayer friendly policies, permits dividend mixing.
The net result of these changes is likely to be that existing UK multinationals will not remit profits to this country from overseas subsidiaries or will even be tempted to move outside the UK to a more attractive tax regime, perhaps on mainland Europe. It is certain that many foreign multinationals from outside the EU, who have looked to the UK as a natural base for their EU headquarters operations, will now look elsewhere.
Such a significant change in longstanding and well-accepted tax rules will require many companies to review fundamentally their corporate structure, their overseas investment policy, their dividend policy and in the last resort the location of their head office. Not only is the scale of the resulting changes far too extensive to be managed in the short time apparently available but the manner in which the changes have been imposed totally undermines the UK's position as a base from which companies can conduct business with any level of confidence in the future.
We have welcomed the Government's previous initiatives in consulting widely on proposed changes in legislation but it appears that in this case the consultation process has come to a premature end. Had we known that the removal of offshore mixing was a serious possibility then I am sure that the discussions would have covered wider ground.
We would therefore urge you to withdraw this legislation from the current Finance Bill in order to enable a full debate to take place on a subject so vital to the future of Britain's economy. We do not recall any Budget proposal in the past that has generated such a vociferous demand from our members for the Association to make representations on their behalf.
Yours sincerely
Philip Gillett
Chairman, Technical Committee