UK TO RETAIN POWERS AGAINST U.S UNITARY TAXATION
Britain has decided to resist U.S.
pressure and retain powers to withdraw tax credits from U.S.
parent companies based in states which impose unitary taxes on
the worldwide profits of foreign-owned firms, Treasury
Financial Secretary Norman Lamont told Parliament.
    But he added that the eventual use of those powers would
not be backdated if activated before the end of 1988.
    The U.K. Government has consistently opposed the use of
unitary taxation of international business on grounds they are
contrary to internationally accepted principles, laid down by
the United Nations and the OECD, Treasury sources said.
    In a written parliamentary answer, Lamont said "in the
meantime, progress towards a final resolution of the unitary
tax issues will be kept under careful review" by Britain.
    "Should it be necessary to take action ... Before December
31, 1988, it will not apply to dividends paid before the date
of the announcement of such action. If it is necessary to take
action thereafter, it will not apply to dividends on or before
December 31, 1988," Lamont said.
    The Reagan Administratian published draft legislation late
in 1985 to limit states use of unitary taxation to the profits
made inside the U.S., Known as the "water's edge" method.
    In response to that draft legislation, Britain agreed to
defer initiating action under its Finance Act 1985 - but only
on the understanding that legislation to resolve the unitary
tax issue would be made law and take effect from end-December
1986.
    Then the U.S. Administration said in September 1986 that it
had decided not to pursue Federal legislation, in view of the
passing of legislation in California.
    Britain, however, considers the California legislation
unsatisfactory, not least because U.K. Business will have to
pay a fee for the right of not being assessed by the unitary
tax method, government sources said.
 Reuter
