The government is planning to make sovereign wealth funds pay corporation tax on property and commercial enterprises.
The Treasury launched a consultation this week on plans to bring the tax treatment of SWFs, which include some of the largest global investors, in line with other foreign institutional owners of UK property.
But some tax experts say the move could deter foreign investment in Britain.
“There will be some businesses that will be adversely affected and will need to consider restructuring for the future,” said Grant Wardell-Johnson, global tax policy leader at KPMG, who said the proposals could limit foreign investment rather than expand it.
The consultation says the government hopes to attract investment by putting the details of sovereign tax immunity rules into legislation “to provide greater clarity and certainty for foreign investors”. Under the current system, by contrast, eligibility is assessed by HMRC on a case-by-case basis.
The Treasury plans to introduce the rules in April 2024. Under the proposals, SWFs’ revenue from passive portfolio investments, such as equities and bonds, would retain immunity from direct taxes.
The plans would bring the UK’s taxation of foreign sovereign investors into closer alignment with their treatment in countries such as the US, Australia and Canada.
The issue has grown in significance in recent years, as sovereign funds have focused more on commercial activities and property ownership.
