Brown cornered in tax uproar

The treasury is set to back down after heavy lobbying over its controversial plans to crack down on the tax paid by multinationals.

Accountants have been told that the Treasury will extend the consultation period over the new tax beyond the original deadline of 17 April, a move that is being interpreted as the first step toward a full-scale climb-down by the Treasury.

Gordon Brown, the Chancellor, has been under extreme pressure from the business and financial communities over the tax, which is aimed at stopping multinationals taking advantage of lower tax rates in other countries where they operate.

The biggest row has been with accountants PricewaterhouseCooopers, which claimed the tax could cost £10bn compared with a Treasury estimate of £100m.

The accounting firm was attacked directly by Mr Brown, but its figures were backed up by its rival Ernst & Young, which polled its 10 largest clients and found the cost to them would be at least £500m.

The Independent on Sunday has learned that one of E&Y's most important clients, Allen Yurko, chief executive of Invensys, the multinational engineer, has joined the chorus of disapproval at the proposed tax changes.

On Monday, at a CBI dinner attended by trade secretary Stephen Byers, he expressed his disappointment that British multinationals would be disadvantaged compared to their foreign counterparts.

Invensys, formed in 1998 by the merger of BTR and Siebe, is in the firing line of the tax changes because the majority of its business is located abroad. Its UK operations are responsible for only 9 per cent of its £6bn annual sales.

Another chief executive of a FT-SE100 multinational said he would consider moving the company's headquarters from the UK if the tax plans were not amended. "There are plenty of other more favourable locations where we could operate. It is just emotion and history that has us in the UK," he said.

The venture capital industry has also warned that the tax could lead to European investment funds being administered out of Madrid or Frankfurt rather than London.

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