CFC Proposed Reforms - impact on IP Rich Groups

On 26 January 2010, the Government published a Discussion Document outlining its current thinking on the reform of the United Kingdom's controlled foreign company rules. 

This will be of interest to UK companies holding significant IP assets or UK headed IP rich groups.

Whilst the final proposals will not be enacted before 2011, this e-update seeks to make such companies or groups aware that the proposed rules could result in additional UK tax charges on any future transfer of IP out of the UK or for passively held IP income arising to foreign subsidiaries of UK groups. 

The Government's stated aim is only to seek to avoid the artificial diversion of profits from the UK and not to tax profits genuinely earned in overseas subsidiaries (including, in this context, profits derived from companies involved in the active management of their IP).  However, the perceived scope for the diversion of IP income from the UK has led to specific proposals to deal with IP income and the transfer of IP assets.

There still remains considerable uncertainty as to the application of the proposals, with more detailed proposals and draft legislation to be published later this year. 

Therefore, we would encourage you to monitor developments, review how the current proposals could impact on your IP holdings with a view to making representations and/or structuring your activities to minimise any adverse impact which could arise from the proposed reforms.

Lawyers Nikol Davies, Graham Hann, Christopher Jeffery, Jason Rawkins