Last year the treasury announced a consultation on the taxation of foreign profits of companies. One of the main change being proposed is that dividends paid to UK companies by their foreign operating companies would be exempt from UK tax. Whilst many commentators welcomed the proposals, suggesting that the UK would consequently become a more attractive place to do business, others warned about the small print, namely the tax implications of “mobile income”.

Mobile income is income which is capable of being shifted around international groups so that it is taxed in the country with the lowest corporation tax rate. Income which is “mobile” may include income earned from passive sources such as intellectual property, design and patents, but it could relate to a wide number of sources, and it could be quite time consuming to prove that the source was not located in the UK for other reasons than tax avoidance. Mobile income might also relate to shared services, or other intra-group activities.

Conversely “active” income will not be subject to special rules as this is taxed where generated and the treasury hopes to be able to successfully separate the two out. UK multinationals are not so sure that this is possible or whether they like the treasuries ideas after all.

Further consultation is expected on the taxation of foreign profits in July, until then it is reported that UK multinationals have been lobbying ministers for a change in the proposals. It has taken business some time to wake up to what might be on the agenda, although everyone is hampered by the lack of detail. With more and more large companies threatening to leave the UK Chancellor Darling appears to have woken up to the fact that this could be another "income shifting" protest on a much bigger and more damaging scale. He is already digging some trenches, it seems - he took the radical step of announcing the formation of a business-government forum to look at tax issues for the multinationals.