Darling bows to big business in new tax U-turn on foreign profits

Alistair Darling will carry out another U-turn on tax this week by abandoning plans to tax foreign profits made by British firms.

The Chancellor's move follows fury from companies who threatened to move abroad to avoid the tax, which could have cost the country billions in lost revenues. 

The Treasury denies a U-turn but officials confirmed the tax will not go ahead.

Mike Warburton, senior analyst with Grant Thornton accountants, said:
'I'm just glad they have backed away from it.

'This would have done a great deal of damage.'

It follows a string of hasty revisions of Budget measures, including the 10p tax fiasco, the scrapping of the 2p fuel duty rise, and concessions in reforms to over capital gains tax and the taxation of non doms.

The controversial proposals were set out last year to crack down on tax avoidance, as a quid pro quo for exempting foreign profits from UK tax.

However the plans in the discussion document to impose a worldwide tax on 'passive' income, such as royalties from intellectual property, provoked a backlash from major UK companies.

Some companies relocated their headquarters to Ireland for tax purposes, including publisher United Business Media and pharmaceuticals company Shire.

Head of Shire, Angus Russell, told the Financial Times his company had made significant savings from the relocation and said he had been approached by other companies for advice on following suit.

Ministers are expected to re-commit to the principle of exempting foreign profits from tax, although ways to achieve that will be discussed with business, rather than being determined by the Treasury.