Darling to stop insurers quitting the UK
Action to stem the flow of insurance companies leaving Britain is expected in the Chancellor's Pre-Budget Report later this year.
Overhaul imminent: the Chancellor is set to redraw the insurance tax regime.
Alistair Darling is set to redraw key aspects of the insurance tax regime to help preserve London's position as a hub for the industry.
Last week, the Association of British Insurers produced a list of demands ahead of the PBR.
But already, according to sources close to the Treasury, two of the ABI's major concerns - both referring to the thorny issue of the taxation of foreign profits - are likely to be met.
Some insurers have left the UK in favour of more competitive tax jurisdictions. Hiscox relocated to Bermuda in 2006, while Brit Insurance announced earlier this year that it was to shift its headquarters to the Netherlands. There are fears that more will follow.
'There is the danger of a big bluechip company moving abroad,' said Peter Vipond, ABI director of financial regulation and taxation. 'When I talk to chief executives, they are coming back from Dublin or the Netherlands or wherever, where they have been taking soundings.'
The two ABI demands on which some results are expected in the PBR relate to 'controlled foreign companies' (CFCs) and to overseas branches.
To stop multinational UK firms from diverting profits to low-tax jurisdictions abroad, the Treasury's CFC regime treats with suspicion overseas units of British firms holding large amounts of capital, yet employing few staff. But this means that legitimate insurance organisations displaying these characteristics are being caught in the tax net.
By contrast, a British-owned manufacturing company would be allowed simply to pay the local tax and be exempt from UK taxes. The ABI wants this exemption to apply to insurers.
Meanwhile, the European Union's new 'Solvency 2' insurance directive makes it more attractive for insurers to turn their subsidiaries in other EU countries into branches, to save having to provide each subsidiary with its own pot of capital.
But the UK insists that where the local tax is lower than British tax, the branch pays the difference to Revenue & Customs. This made other EU countries that do not levy the top-up more attractive to insurers, said the ABI.
Other items on the ABI shopping list are expected to have to wait. These include cuts in the rate of corporation tax and in the new 50 per cent top rate of income tax, to be introduced next April.
The ABI said: 'The increase in the upper rate of income tax has led many of the industry's key employees to question whether they still wish to work in the UK.'
In July, the Chancellor said: 'The insurance industry is a vital part of the UK economy, employing around a third of all people who work in financial services and managing almost £1.5 trillion in assets.'
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