The UK Inland Revenue issued a press release on wednesday 6 October stating that from wednesday tax paid by Isle of Man, Jersey, and Guernsey international companies (so called "designer" companies) and certain Irish companies will no longer be considered qualifying taxation for the purposes of the 75% equivalent overseas tax test within the CFC rules. Therefore these companies will no longer avoid an imputation of profit into the UK parent company's tax computations and effectively renders them redundant for UK tax planning purposes.
The move by the Inland Revenue was not totally unexpected although the timing of the announcement to coincide with an announcement made by the new EU Tax Commissioner is slightly curious. Also on wednesday the EU announced that certain eurobonds would be exempted form the new EU Directive on the taxation of savings. It is a matter of public record that Gordon Brown has been resisting the application of the new Directive to the London Eurobond market in order to preserve its attractive tax status in that withholding tax is not applied to interest paid on bonds quoted on this market. It is widely thought that if the new directive does apply to this interest that many jobs maybe lost in the City as the market would be likely to move out of London.
Whilst the change in the CFC rules will probably not affect local tax receipts materially it does seem that when fiscal pressure is put on the United Kingdom a reverberatory effect is felt in the Isle of Man."
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