Alistair Darling’s peace offer in attempt to halt the tax exodus

Alistair Darling will this week offer an olive branch to multinationals in an attempt to head off a threatened corporate exodus from Britain.

He will try to defuse a row over the taxation of foreign profits by insisting Treasury reforms are not intended as a revenue-raising measure.

Darling will also indicate that the government is willing to grant a concession on the key issue in the row – the treatment of intellectual property held offshore, such as brands and patents.

The Sunday Times revealed a fortnight ago that a powerful delegation from the secretive Multinational Chairmen’s Group had visited Downing Street to lobby Gordon Brown and Darling on the issue.

They warned that if the proposals on intellectual property went ahead, big companies might have to pay hundreds of millions of pounds more in tax. The Treasury plan would speed the move of corporate headquarters out of Britain to lower-tax regimes, the delegation said.

Darling will try to mend fences with the business community in his speech to the CBI’s annual dinner on Tuesday.

The chancellor will insist that there was no intention of widening the tax net and using the new proposals as a measure to increase revenue.

He will say that the Treasury’s final proposals, due to be published in July, will take into account the impact of the change on individual sectors, to ensure that none will face higher tax bills as a result.

“The Treasury has been looking hard into this,” a senior official said. “We’ve been at pains to make clear that any changes should be revenue neutral, but clearly we will also be looking at how individual sectors are affected and at the issues around intellectual property. We are absolutely committed to ensuring the UK tax regime remains competitive.”

Darling is also expected to unveil the membership of the new multinational forum on tax he announced at the end of last month “to discuss ways in which the tax system can provide the long-term certainty multinational companies need”, and he will set out the broader strategic areas on which the group will concentrate.

Significantly, its members will include Julian Heslop, chief financial officer of Glaxo Smith Kline (GSK), one of the intellectual property-rich companies that has raised concerns about the taxation of foreign profits.

Another member will be Douglas Flint, chief financial officer of HSBC. Representatives of both companies attended the recent meeting at Downing Street. The panel will be chaired by Treasury financial secretary Jane Kennedy.

Several high-profile companies, including Shire Pharmaceuticals and United Business Media, have already announced they will move out of the UK to Ireland to pay less tax. Several others, including WPP, GSK and Astra Zeneca, have said they are considering their options.

The current row grew out of proposals published last year to reform the way earnings from foreign subsidiaries are taxed.

A discussion document proposed making foreign dividends tax-exempt – a move welcomed by finance directors. The fine print of the document, however, contained exceptions, including a proposal to tax intellectual property held offshore.

Multinationals say this could bring earnings from overseas brands, patents and designs within the reach of the UK taxman.

Legal experts say one way forward for the Treasury would be to introduce a “motive” test, a feature of the current system governing foreign earnings. Companies would only pay up if it could be shown they deliberately moved activities offshore to avoid tax.

Source: Times