Clarification of the approach to taxation of controlled foreign...

Following the European Court judgement in the Cadbury Schweppes case (reported in StrategicRISK November 2006), the UK Chancellor has announced legislation to amend the rules for CFCs. However, under the proposed changes, UK companies will be required to apply to HM Revenue & Customs to disregard those profits of their CFCs that arise from genuine economic activity elsewhere in the EU - a provision that Nigel May, tax principal at MacIntyre Hudson, believes reflects "merely a grudging acceptance of the European Court ruling by the Chancellor, and certainly not in the spirit of European law".

May warns that this could lead to further litigation "because companies will be required to apply to HMRC to gain a benefit that would appear to be there as of right under the European freedom of establishment laws. It would be much more in the spirit of the Court ruling to allow this as of right, with the Revenue challenging any artificial avoidance schemes."

There would appear to be some scope for captive growth as, according to research by Aon, more than one third (36%) of the Global 500 do not currently own a captive. The Aon G500 Captive Report also says that, even in the US and Europe, where the concept has been long established, it is apparent that there is significant room for new take-up, with approximately 22% of the largest companies not owning a captive.

Mature insurance buyers in certain industries and sectors, thought by many to be saturated in captive take-up, actually show relatively substantial growth potential, with around 40% of the largest finance and insurance companies not owning a captive at parent company level.