HM Treasury and HMRC have launched a programme to simplify aspects of the UK’s corporation tax system, including some potentially duplicative rules relating to financing (specifically, restrictions on the deductibility of interest and other financing costs) with the aim of reducing complexity and administrative burdens on businesses. This is likely to be of particular interest to large businesses, particularly in relation to their cross-border activities.
International tax and financing
The consultation acknowledges concerns expressed about the cumulative effect of overlapping rules relating to the taxation of international activities and, for financing costs, on complexity and administrative burdens, particularly since the UK has fully implemented Pillar Two rules through its multinational and domestic top-up taxes. Areas identified for simplification include the Controlled Foreign Companies (CFC) rules, the anti-hybrid mismatch rules, the Corporate Interest Restriction (CIR) and unallowable purpose rule for loan relationships.
Any simplification measures are likely to be targeted on specific details of these rules (for example, aligning CFC exemptions with Pillar Two and possibly excluding those within Pillar Two from some of the anti-hybrid rules), rather than repealing any of these regimes. As the Government has not identified significant simplifications to CIR that would avoid material fiscal cost or risks to that regime's policy objectives, this is an area where businesses may benefit from making suggestions for specific simplifications.
