Washington, DC – The National Foreign Trade Council (NFTC) today expressed concern over draft tax legislation currently under consideration in the United Kingdom (UK), which includes “worldwide debt cap” rules that would create a web of complexity and uncertainty for foreign investors. In a letter sent by NFTC President Bill Reinsch to UK Chancellor of the Exchequer Alistair Darling, MP, the NFTC expressed deep concern over the draft legislation.
“The proposed legislation is very wide reaching and complex, and its introduction in its current form would cause great uncertainty both for existing and potential inbound investors,” wrote Reinsch. “These factors will have a negative impact on the UK’s attractiveness as a location for inward investors and could lead to the overall foreign profits package (including the dividend exemption) being seen as making the UK less competitive in the international arena. Particularly in a time of recession, that cannot be a constructive policy for the UK.”
The NFTC letter also pointed out that the proposed rules would be both difficult to apply and administer, as they would require investors to generate many separate calculations, including some that must be made on a gross basis and others on a net basis. Further, the NFTC, noted that “the detailed calculations lead to unintended results and disallowances due to their complexity” and that “the time periods for making calculations and the associated additional returns are very restrictive and do not fit into the existing administrative framework, thus making all of the administration still more time-intensive (and prone to error).”
In addition, the NFTC questioned the rationale behind the rules, noting that the UK already has in place three other rules that restrict interest deductibility and add complexity for foreign investors – thin capitalization rules, the “unallowable purpose” rule, and the anti-arbitrage rules.
The NFTC suggested that the UK not adopt the worldwide debt cap rules now as proposed and instead continue to work with the private sector to make the proposed system less complex. “Given the current economic downturn, and significant losses being made by the banking and other sectors, we do not believe that a short delay in implementing the worldwide debt cap rules would adversely impact tax revenues,” wrote Reinsch.
“In short, we do hope that you will reconsider the introduction of the worldwide debt rules in their current form, except with the very broadest of safe harbors. There is much that is good in the foreign profits package, and that our members think is forward-looking. It would be unfortunate if the worldwide debt cap rules were to negate all of that, and, instead, discourage foreign investors,” Reinsch concluded.
To read a full copy of the letter, please click here.
Advancing Global Commerce for Over 90 Years
The National Foreign Trade Council (www.nftc.org) is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.