Conservatives want u-turn on foreign profits tax

Businesses may move abroad if foreign profits are not tax-exempt, Conservatives claim

Wednesday, 21, May 2008 12:01

The Conservatives claim taxing companies on foreign profits could lead to an exodus of businesses from the UK, resulting in a £160 million loss in taxes.

Research by PricewaterhouseCoopers for the Tories finds that exempting foreign profits from tax would contribute to a simpler and more competitive tax system and "could well be revenue neutral in the long run" since it would encourage repatriation of profits for investment, according to the party.

And the Conservatives claim that £160 million of corporation tax revenues are at risk from just six companies that either have left or are considering leaving the UK and for whom the necessary data is available.

The total figure for potential tax losses from companies moving abroad is likely to be much higher, the party warns.

Shadow chancellor George Osborne said: "This research shows that Alistair Darling's dithering is damaging our economy and undermining tax revenues.

"He should do yet another u-turn and climb down from his badly thought through proposals on taxing foreign profits."

The up-front cost of exempting foreign profits from tax (a "participation exemption") is "surely under £0.5 billion and probably in the range £100 - £200 million", much lower than other public estimates, according to PwC.

In addition, such a change would lead to an increased flow of funds back into the UK, with the result that it "could well be revenue neutral in the long run", the report said.

But the Conservatives said if just six British companies - Diageo, Smith & Nephew, Shire, WPP, Chaucer and Aberdeen Asset Management - took their business abroad, £160 million could be lost in tax revenues.