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Overseas Income Taxation - The Treasury U-Turn Is Announced

As we covered on this site just a couple of days ago, the Treasury has today announced the much rumoured u-turn on the taxation of foreign dividends for companies based in the UK. While the move has been welcomed by all of the business associations up and down the country, it may have set in motion what could turn out to be a very large problem for the government.

It seems that the fact the government was looking to use successful businesses to fill the black hole in the public purse has not gone unnoticed. We have already seen the likes of Shire Pharmaceuticals relocate to the more tax friendly country of Ireland and there are rumours that more will follow. Even an embarrassing apology from the government might not be enough to stop a number of high profile groups looking to leave the UK. So what next?

The authorities have tried to save face a little by suggesting that they will look at other ways to raise taxes, in conjunction with the CBI, when in reality the idea is dead and buried. It is now starting to get very embarrassing for the government with large parts of the last budget already rewritten after only a few months. The Treasury has a real credibility problem with the City and it will take some time to repair this relationship.

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