Treasury plans to soften FIDs blow

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The Treasury said yesterday it was discussing with companies how to soften the blow from last week's controversial Budget to abolish foreign income dividends (FIDs) by 1999.

Alastair Darling, Chief Secretary to the Treasury, said: "There's no question of any U-turn." However he said Geoffrey Robinson, the paymaster- general, had already told parliament that ministers were looking at the implications of the proposals because they were anxious to encourage UK companies to stay and invest in Britain. FIDs were introduced in 1993 to prevent companies from paying tax twice on overseas earnings.

Observers said, though, that a climbdown looked inevitable: "No-one expects the Government to simply say it is not now abolishing FIDs. That would be too embarrassing. But they have clearly not thought through the implications. They are losing revenue as companies are starting to pay FIDs before abolition."

A Treasury spokesman denied it had not thought through the proposal: "FIDs are a very complex matter. We've got two years to sort this out."

He ruled out an announcement today but said changes to the Budget measure were possible during the current drafting of the Finance Bill.

Industry bosses said the Government could broaden the definition of an international headquartered company (IHC) to include UK groups with substantial overseas earnings.

The Budget states that IHCs, defined as companies wholly owned by foreign parents, would be allowed to continue paying FIDs.