Treasury exempts insurers from foreign branch tax

The Treasury has published plans to exempt UK insurers from taxes on profits earned by their foreign branches.

Under existing rules, UK based companies are liable for corporation tax on any profits by their foreign branches. But subsidiaries of UK parent companies are not subject to corporation tax.

The issue has become increasingly pressing for the industry because the greater harmonisation of regulation stemming from the forthcoming Solvency II directive will make it more attractive for insurers to organise themselves using branch structures.

In a bid to boost the UK’s international competitveness, the Treasury has issued a consultation paper outlining how the tax treatment of foreign branches and subsidiaries will be brought much more closely into line.

ABI acting director general Maggie Craig welcomed the paper.

She said: “These reforms will make it easier and clearer for UK based firms to bring profits earned abroad back to the UK and will significantly boost London’s international standing. They should encourage more firms to use the UK as the hub for their European operations and will bring the UK more in line with other centres, like the Netherlands and Ireland. We now need such changes to be pushed through as soon as possible, as companies need certainty to be able to plan for the long-term.”

“We are pleased that the Government are looking at introducing a branch exemption. The ABI has long called for such reform, as the upcoming Solvency II regulations will mean more insurers may use branch structures. Without a branch exemption, the UK would be at a competitive disadvantage as the tax systems of other EU locations already offer branch exemptions or their equivalent, and so are better aligned with Solvency II.”