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What we do

Foreign profits

The government has an ongoing process to reform the taxation of companies' foreign profits. While we support the reform, it could throw up issues for the property industry.

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What's the issue

The government began its foreign profits reform process with a limited understanding of the property industry and we were therefore concerned that the proposed reforms could give rise to unnecessary and disproportionate business costs for our members and the industry. We have been engaging with government officials to ensure that this does not occur. We continue to remind them that property investment income from overseas property is fundamentally 'good' income, which is genuinely earned.

The government’s reform of the taxation of foreign profits consists of several elements, including:

introduction of a corporation tax exemption for most dividends and other distributions received from foreign companies
introduction of a worldwide debt cap, restricting relief for intra-group financing costs payable by UK members of a group by reference to the group’s total external financing costs, and
proposed reform of the controlled foreign companies regime to protect against the artificial diversion of UK profits.

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Why is it important

The corporation tax exemption for worldwide distributions was a significant win for the industry. It is positive for UK competitiveness and reduces the general tax compliance burden for UK corporates.

The worldwide debt cap introduced some very complex provisions and represents a major compliance burden for groups, even when they may not have any ultimate financing expenses disallowance. Over two years after the rules were introduced there remain particular issues with joint ventures and securitisations that need to be ironed out.

The controlled foreign companies regime affects a large number within the property industry and can represent a significant compliance burden for taxpayers. We have been engaging with officials to ensure that the proposed reform of the regime reduces that compliance burden.

What we're doing about it

We have responded to numerous government consultations, most recently in September 2011 to the latest proposals on the controlled foreign companies regime. Individuals from BPF member organisations sit on the government’s CFC and property working group and have informed the latest set of proposals, which place a far more proportionate compliance burden on property businesses than the existing rules. Most importantly, the latest proposals recognise that property investment is a genuine commercial activity that does not easily lend itself to the artificial diversion of profits from the UK.

Foreign profits contact