Business tax reform

Supporting detail:

Changing the way the UK taxes overseas profits

Globalisation has meant that the world’s markets have become more open. As a result companies increasingly work across national borders and the ownership of UK businesses has become more internationally diverse.

To be more competitive, the UK’s corporate tax system is focusing more on profits from UK activity, rather than the worldwide income of a group.

To recognise this, we’ve made changes to our Controlled Foreign Company (CFC) rules. These were set out in the Corporate tax road map and came into effect January 2013.

The CFC rules are essentially anti-avoidance rules designed to prevent a company from artificially moving its profits abroad, to a country with a more favourable tax rate.

The CFC rules have been modernised to better reflect the way business operates in a global economy.

The new rules only tax profits which have been artificially diverted from the UK, whereas the old rules would also catch profits diverted by a CFC from any other country.

This allows businesses based in the UK to be more competitive internationally, creating more investment and jobs.