Schedule 14
Finance Bill
12:15 pm
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
We have had a helpful discussion on the schedule and the amendments. The new exemption from corporation tax for dividends and other distributions received from foreign companies which is introduced by the schedule is a key element of the package to enhance the attractiveness of the UK as a location for multinational businesses. As the hon. Gentleman said, it takes effect from 1 July 2009.
I say in passing that we have thought very carefully about the implementation dates of the various parts of the package. Therefore, as we will discuss shortly, we are introducing the debt cap for an accounting period which will begin on or after 1 January 2010, so that businesses have time to prepare. That the measure is being introduced later than the dividend exemption has been widely welcomed.
The hon. Gentleman asked about transitional arrangements. Any profits accrued in a foreign subsidiary before the package comes into force can be paid out as an ADP dividend and remain subject to the current rules, which may be a helpful clarification.
Considering the tax treatment of branches would have raised more issues and diverted attention away from the main point, which is the taxation of foreign dividends. We will bear branches in mind when we look at future options for controlled foreign companies, but we will not consider the treatment of foreign branches in detail until after the consideration and reform of the CFC rules.
I have one further point to make about the interaction with the ADP exemption. Amendment 100 removes the restriction on double taxation relief. Amendment to the CFC changes in schedule 16, which we will come to, will allow the split period to also be treated as split for the purpose of double taxation relief. There was indeed a problem in the area highlighted by the hon. Gentleman when the Bill was initially drafted, but I think that that has been solved by the various changes that we will debate today.