Multinational groups 'set for huge tax rise'

BRITAIN'S leading multinational companies face hundreds of millions of pounds in extra costs as a result of 'draconian retrospective legislation' announced on Tuesday, according to Ernst & Young, the accountants.

The Inland Revenue claims the change in the way non-trading controlled foreign companies (CFCs) - investment subsidiaries of international companies - are taxed will raise about pounds 100m in a full year.

But Andrew Jones, national head of E&Y's tax practice and a specialist in the taxation of multinationals, says the figure is likely to be much higher. 'I can think of a couple of companies that will get to that amount ( pounds 100m) on their own.' However, he could not predict the size of the total bill.

The move - a little-noticed announcement in the Budget - will take effect for accounting periods ending on or after 30 November, and will therefore affect the many UK companies with CFCs that have accounting periods finishing at the end of the year.

This would make it retrospective, since it would catch income already earned in the accounting period without allowing companies to make different arrangements. 'It's not on to change the game halfway through,' Mr Jones said.

By discouraging international companies from using Britain as a base, the measure also goes against moves in both the March Budget and yesterday's speech designed to attract foreign businesses to Britain.

Mr Jones said this change, combined with the planned review of the taxation of interest paid and received by businesses, threatened to put UK-based companies at a competitive disadvantage.

While the exact ambit of the review was not yet clear, there was concern that it would lead to more restrictions, Mr Jones added.