Draft legislation published by the UK Treasury on the taxation of foreign profits has received mixed reviews by the country's tax professionals.
The draft law, unveiled on Tuesday, has been designed to improve the competitiveness of the UK economy and represents a move towards a more territorial approach of taxing foreign subsidiaries.
But lack of clarity in the draft has led Kevin Hindley of Alvarez & Marsal Taxand UK, to question the legislation's impact.
"I think it is a real mixed bag and it depends who you are and what you do. It could be good news for some but it could be disastrous for others. You have to look at it on a case by case basis," said Hindley.
The draft provisions cover a participation exemption of foreign dividends for large and medium sized groups. But Hindley is concerned that this announcement will have little effect on improving the country's economy.
"Whether this enhances the UK's international competitiveness remains to be seen, particularly in light of continuing uncertainty around the future of the UK CFC regime."
However, Chris Morgan, head of international corporate tax at KPMG in the UK, feels the exemption is necessary to boost the UK's competitive edge.
"This package is one of the most significant changes we've seen in the corporate tax landscape. Such a change is essential if the UK is to have a modern, competitive tax regime," Morgan said.
Richard Murphy, director of Tax Research, disagrees completely with both opinions and is calling for this provision to be scrapped all together.
"It is just not acceptable to have a tax system where exemption is part of the law. The UK has now just become a wholly artificial tax jurisdiction.
"The UK economy is heavily reliant on the government, so when the government removes some of its revenue sources then how can it support the economy?" said Murphy.
Tax executives wanted proposals to simplify the tax operations for large multinational businesses.
"If the package is passed with similar details as to what we have now then I expect our company to start a few new projects next year," said Ian Brimicombe, head of tax at AstraZeneca, a pharmaceuticals company.
"The package is just simplifying the existing tax system. It will make it a lot easier for us to repatriate profits from our numerous locations around the world," Brimicombe added.
Originally outlined in the chancellor's pre-budget report, the provisions also include a proposed worldwide debt cap.
The debt cap would see interest that is deductible in the UK capped by reference to the net external finance costs of the worldwide group leaving foreign companies facing a greater tax burden.
"If you are an overseas company that has invested into the UK and you have a very good business model, all of a sudden you will lose all of your leverage that you previously had. So I think this proposal will be a very big issue indeed as businesses futures won't look too bright," said Hindley.
The guidelines surrounding the CFC regime have been adjusted to cater for the new foreign exemption rules. Despite this there is still uncertainty over the future of the regime and its ability to promote the UK as a good investment location.
"It is good news that the government will continue to examine options to reform these rules so that they should not tax profits that are genuinely earned in overseas subsidiaries. But, the CFC rules are one of the main reasons for a number of companies having migrated from the UK this year," said Morgan.
The proposals will be adjusted over the next few months in the lead up to next year's budget. Amendments will be based on discussions between business, government, and the treasury in a bid to keep companies in the UK.
"I expect to see a lot of changes to the rules and I anticipate it at least to stem the number of companies leaving the UK," said Patrick Mears, tax partner at UK law firm Allen & Overy.
The foreign profits proposals will be introduced in Finance Bill 2009, while consultation on the new CFC regime will continue through 2009 and any changes will probably become effective in 2011.
