Large business taxation: the Government's strategy and corporate tax reforms

A consultation was launched by the Chancellor of the Exchequer, Gordon Brown, today. It sets out the Government's strategy for modernising the corporate tax system, the policy objectives underpinning the reforms made since 1997, and takes forward the Government's proposals on the taxation of returns from companies' substantial shareholdings. The consultation document proposes an exemption for capital gains arising on the disposal of companies' substantial shareholdings.

The Chancellor said:

"Four years ago, we set out our central economic aim of achieving high and stable levels of growth and employment. In the last Parliament, we put in place reforms to achieve macroeconomic stability and to promote work.

"In our second term, we have set ourselves the target of creating a new Britain based on enterprise for all. The UK has long been a hub for global business. There are many factors that make the UK particularly attractive, including our sophisticated financial markets and our strong trading links with all parts of the world. To ensure this remains the case, it is essential that the corporate tax system keeps pace with changes in the global business environment.

"In 1997, we started the process of reform of the corporate tax system. Our reforms centred on a tax system with low tax rates combined with a broad tax base, removing tax distortions and eliminating unnecessary rigidities that imposed administrative burdens and unwieldy structures on business.

"The consultation launched today focuses on the next stage of these reforms with a new relief for corporate capital gains to facilitate the process of restructuring and reinvestment, helping business to take advantage of emerging global opportunities. This is another essential step towards a more modern, more flexible and efficient tax system that will provide the stability that business needs to invest for the future."

This consultation document:

confirms that the Government is committed to ensuring that the UK remains a very attractive location for business, and sees corporate taxation as a key element;
sets out that, within the general tax framework, the Government is committed to keeping taxes on business as low as possible and ensuring that the tax system reflects the realities of the modern business environment, and details the key principles for corporate tax
reform - business competitiveness and fairness;
explains, as announced at the Budget, how a capital gains exemption for companies' substantial shareholdings might work if introduced as part of the UK tax system;
identifies the substantial attractions that the Government sees in the proposed capital gains exemption approach;
explains how a parallel exemption for dividends might work, but also identifies the problems with such an approach, concluding that the Government feels that the current system based around a credit approach offers a better way forward;
indicates that the Government does not plan to restrict interest deductibility as part of the proposed reform of company gains or the possible exemption for dividends; and
announces a review by the Inland Revenue of the coverage and effectiveness of links with business on administrative matters, focusing in particular on feedback channels from larger businesses into the operational policy making process.

This consultation will help ensure that the UK remains an attractive location for business by creating the best possible environment for long-term business investment both in and from the UK.

NOTES FOR EDITORS

1. In the Budget (see Inland Revenue Press Release Rev 2) the Chancellor announced that the Government would be publishing a consultation paper that would set in a broader context the current proposals for a relief on gains arising on the disposal of substantial shareholdings. This builds on the Inland Revenue's Technical Notes of June and November 2000, which consulted on a deferral relief for gains realised by companies on substantial shareholdings in trading companies. The November document also floated the alternative of an exemption rather than deferral.

2. These are important matters for the future direction of company taxation and business has expressed considerable interest in a broader discussion of the issues arising. The Government considers that it is right that there should be a full and open discussion of the issues and, with the publication of "Large Business Taxation: The Government's Strategy And Corporate Tax Reforms", the Government is now seeking views.

4. Copies of Inland Revenue Press Releases and Technical Notes can be found on its website - link below.

HM TREASURY PRESS OFFICE

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Media links

PDF file of Large business taxation: the Government's strategy and corporate tax reforms

External links

Inland Revenue website