Budget 2009: Chancellor fails to back big business

TAX experts say the Chancellor’s Budget shows limited benefits for big business.

While the tax team at BDO Stoy Hayward in Leeds welcomed the introduction of the dividend exemption for overseas dividends received by corporates announced in last year’s Pre-Budget Report, they said the benefits of the measure will be countered by the introduction of the “controversial and complex” ‘Worldwide Debt Cap’ legislation.

Dan Brookes, tax director at BDO Stoy Hayward, said: “At a time when the dividend exemption makes the UK a more attractive holding company location, the Government has decided to proceed with its much criticised restriction on allowable interest.

“Whilst other European jurisdictions have strict interest deductibility rules, the Worldwide Debt Cap goes a step further and requires multinational groups to consider the external debt position of the entire worldwide group to calculate UK interest deductibility. The rules are unduly complex and there are no companies that will benefit from this introduction.

Mr Brookes believes that the introduction of the debt cap may be detrimental to inward investment in the region at a time when favourable exchange rates would otherwise make UK businesses attractive investment opportunities

He commented: “A number of the very largest businesses in Yorkshire are subsidiaries of overseas parented multinationals. I am concerned that, at a time when the UK badly needs inward investment from substantial multinationals, the Government is looking to penalise well managed groups that have limited net external debt, but cash to inject in the UK.

“We should be encouraging such companies to inject cash into the UK to bolster UK subsidiaries rather than introducing measures that discourage this.

“I expect groups with significant intra-group financing into the UK will already be considering their options prior to the new legislation being effective for accounting periods beginning on or after 1 January 2010 as the non deductibility of the UK interest expense is unlikely to be acceptable to these groups. The cap will also be to the detriment of future inward investment into the UK,” he added.