17 March 1998

REVIEW OF DOUBLE TAXATION RELIEF FOR COMPANIES

The government attaches great importance to relief of double
taxation and recognises its particular importance to UK
companies investing abroad. With that in mind the Chancellor
announced today that the Inland Revenue will consult business
on opportunities to modernise the system of double taxation
relief for companies.

The consultation process will involve a review of the
functioning and the fairness of the existing system, its
effectiveness in meeting the objectives of the relief and
business' compliance costs, while having regard to the overall
cost of the relief.

Views will be invited on the ways in which these issues could
be addressed. A consultative document will be issued in due
course.

The wider international issues will also be considered,
including the approaches taken by other countries.

It is anticipated that any proposals for changes in the law
that come from the review will be included in a future
Finance Bill.

DETAILS

1. Double taxation arises when income is taxed both by the
taxpayer's country of residence and by the country in which
the income arises. The most common United Kingdom approach
to relieving double taxation is to tax the foreign income of
a United Kingdom resident but to deduct the foreign tax paid
on the item of income from the corresponding United Kingdom
tax. Alternatively, the foreign tax may be treated as
reducing the amount of the income on which United Kingdom tax
is charged.

2. The purpose of double taxation relief is to remove or
reduce the disincentive that double taxation represents to
outward investment. It is estimated that in 1997-98 5.3
billion pounds of relief will be given against income tax and
corporation tax. A key part in that is played by double
taxation agreements that the United Kingdom has entered into
with other countries. More than 100 of these are now in
force.

3. Some of the existing legislation on double taxation
relief is several decades old. The Inland Revenue will in
due course consult business and other interested parties
about the proposals for change that might be considered. In
the meantime suggestions for matters that the review should
take into account should be sent to:

Mike Waters

International Division (Double Taxation)

138-142 The Strand

London

WC2R 1HH.

4. It is envisaged that principles emerging from the review
might ultimately feed through into changes to the system of
double taxation relief for individuals.

INLAND REVENUE PRESS OFFICE

REVIEW OF DOUBLE TAXATION RELIEF FOR COMPANIES

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